Guirguis Pty Ltd v Michel's Patisserie System Pty Ltd (No 2)
[2019] QDC 11
•15 February 2019
DISTRICT COURT OF QUEENSLAND
CITATION:
Guirguis Pty Ltd & Another v Michel’s Patisserie System Pty Ltd & Ors (No 2) [2019] QDC 11
PARTIES:
GUIRGUIS PTY LTD
ACN 151 423 577
(first plaintiff)and
FREDERICK GUIRGUIS &
KAREN GRACE GUIRGUIS
(second plaintiff)v
MICHEL’S PATISSERIE SYSTEM PTY LTD
ACN 132 424 947
(first defendant)and
MICHEL’S LEASING PTY LTD
ACN 130 002 023
(second defendant)and
RFGA MANAGEMENT PTY LTD
ACN 071 765 609
(third defendant)and
TRENT DELLIT
(fourth defendant)and
APLUS BUSINESS BROKERS PTY LTD
ACN 098 689 840
(fifth defendant)and
GEORGE METZAKIS
(sixth defendant)FILE NO/S:
2515 of 2015
DIVISION:
Civil
PROCEEDING:
Trial
DELIVERED ON:
15 February 2019
DELIVERED AT:
Brisbane
HEARING DATE:
21-24 May, 1 June 2018
JUDGE:
Rosengren DCJ
ORDER:
Judgment to be entered in favour of the plaintiffs subject to hearing further submissions as to the form of the order.
CATCHWORDS:
TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT – FALSE OR MISLEADING STATEMENTS – where the plaintiffs entered into a franchise agreement for a Michel’s Patisserie to be located in Townsville – where the plaintiffs allege that oral and written representations were made on behalf of the franchisor which they relied upon – representations as to future matters – whether representations were misleading
TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT – FALSE REPRESENTATIONS – FALSE OR MISLEADING STATEMENTS – PUFFERY – where the representations were as to the kinds of products which would be available for sale by a franchisee, the reliability and frequency of the supply of those products from Brisbane to Townsville, and the quality and condition of the products upon their receipt in Townsville – whether the representations are mere puffery
TRADE AND COMMERCE – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT – NON-DISCLOSURES – where the plaintiffs allege material non-disclosures - whether the defendants were aware of facts which were not disclosed to the plaintiffs – whether there was an objectively reasonable expectation on the part of the plaintiffs that those facts would be disclosed
TRADE AND COMMERCE – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT – RELIANCE - SIGNIFICANCE OF INDEPENDENT LEGAL ADVICE – RESPONSES OF NON-RELIANCE IN QUESTIONNAIRE - where the plaintiffs sought independent legal advice in respect of the franchise agreement and in completing the Questionnaire and Deed of Prior Representations – where the plaintiffs did not identify the alleged misrepresentations in the Questionnaire and Deed of Prior Representations – where the defendants submit that the plaintiffs therefore did not rely upon the alleged misrepresentations – where the legal advice provided to the plaintiffs was not comprehensive – significance of the independent legal advice – significance of Questionnaire and Deed of Prior Representations – whether reliance on alleged misrepresentations established
TRADE AND COMMERCE – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT – LOSS AND DAMAGE – NO TRANSACTION CASE – losses of first plaintiff associated with entry into the franchise agreement – loss of income of second plaintiffs consequential on the first plaintiff entering into the franchise agreement
TRADE AND COMMERCE – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT – COUNTERCLAIM- WARRANTIES – where warranty clauses provided that the plaintiffs did not rely upon any of the franchisor’s representations – where representations not identified in Questionnaire - where franchisor relies on the warranty and responses to Questionnaire as misleading or deceptive conduct by plaintiffs and counterclaim for loss and damage of franchisor’s liability to the plaintiffs - whether franchisor’s liability to plaintiffs constitutes recoverable loss or damage
Australian Consumer Law, ss 4, 18, 236, 237, 243
Civil Proceedings Act 2011 (Qld) s 58
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199
Ford Motor Co of Australia Ltd v Arrowcrest Group Pty Ltd [2003] FCAFC 313GIO Australia Holding Ltd v Marks (1997) ATPR 43,541
Google Inc v ACCC (2013) 249 CLR 435
Gould v Vaggelas (1985) 157 CLR 215
Henville v Walker (2001) 206 CLR 459
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109
James v ANZ Banking Group Ltd (1986) 64 ALR 347
Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 40-950
Keen Mar Corp Pty Ltd v Labrador Shopping Centre Pty Ltd (1989) ATPR (Digest) 46-048
Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 147 ALR 568
Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 46-054
March v Stramere (E & MH) Pty Ltd (1991) 171 CLR 506
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357
Palmer Street Developments Pty Limited & Anor v J & E Vanjak Pty Ltd & Anor [2018] QCA 111
Pappas v Soulac Pty Ltd [1983] FCA 3
Parkdale v Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
SPAR Licensing Pty Ltd v MIS QLD Pty Ltd [2014] FCAFC 50
Specsavers Pty Ltd v Luxottica Retail Australia Pty Ltd [2013] FCA 648
Riochet Pty ltd v Equity Trustees Executives & Agency Co Ltd (1993) 41 FCR 229
Venerdi Pty Ltd v Anthony Moreton Group Funds Management Ltd [2015] 1 Qd R 214
Watson v Foxman (2000) 49 NSWLR 315COUNSEL:
R S Ashton QC and P O’Brien for the plaintiffs
D Chesterman for the first, second, third and fourth defendantsSOLICITORS:
Thomson Geer for the plaintiffs
Thynne & Macartney for the first, second, third and fourth defendants
Table of Contents
Introduction
RFG and its systems
Background facts re Patisserie
Pre-contractual negotiations
Signing of Franchise Agreement and events prior to Patisserie opening
Operation of the Patisserie
Credibility
Oral and written representations
Representations by Mr Metzakis
Representations by Mr Dellit
Representations in email and price list
Information not disclosed
Whether conduct misleading
Puffery
Oral representations
Email and price list
Non-disclosures
Reliance
Other inquiries
Questionnaire
Legal advice
Change from Brisbane to Sydney
Other matters of non-reliance
Supply of RFG products to the Patisserie
Loss and damage
First plaintiff
Mrs Guirguis
Mr Guirguis
Counterclaim
Summary
Introduction
[1] The second plaintiffs were directors of the first plaintiff company. In March 2012, there was a franchise agreement (‘the Franchise Agreement’) signed by the second plaintiffs on behalf of the first plaintiff whereby the first defendant granted the first plaintiff the right to establish and operate a Michel’s Patisserie business within the Stockland Shopping Centre in Townsville (‘the Patisserie’). The second defendant was the lessee of the premises from which the Patisserie operated. The third defendant managed the franchise system on behalf of the first defendant. The fourth defendant was employed by the third defendant as the Retail Leasing Executive for Queensland and the Northern Territory. The fifth defendant marketed the first defendant’s franchise system to potential franchisees. The sixth defendant was a director and sole shareholder of the fifth defendant.
[2] The first plaintiff also entered into an Outlet Agreement with the second defendant and a Fitout Construction Agreement with a builder and the second and third defendants (‘Related Agreements’).
[3] The second plaintiffs guaranteed the first plaintiff’s obligations under the Franchise Agreement and the Outlet Agreement.
[4] Each of the first, second and third defendants are part of a broader business known at the Retail Food Group. During the trial, these defendants, or any of them, were referred to as ‘RFG’. I have adopted this approach in these reasons, except where it is necessary to identify a particular defendant.
[5] On 28 May 2012, the first plaintiff commenced operating the Patisserie. The Franchise Agreement is also dated this date. There is no evidence as to when it was signed on behalf of the first defendant. In July 2013, the Patisserie was abandoned and notice was given in writing that the first plaintiff was terminating the Franchise and Outlet Agreements.[1]
[1] Exhibit 46.
[6] In September 2013, the plaintiffs commenced this proceeding against the defendants for damages and other orders.
[7] In April 2016, this matter was heard over nine days in the District Court in Brisbane. Judgment was delivered on 27 May 2016 dismissing the claims of the plaintiffs. On 9 May 2017, the Court of Appeal allowed an appeal from that judgment which was set aside, except in so far as that order dismissed the first plaintiff’s claim against the first defendant for damages for breach of contract and breach of warranty and the first plaintiff’s claim against all defendants for damages for negligent misrepresentation. The matter was otherwise remitted to the District Court for a retrial by a different judge.[2] The retrial came before me. I have read the decision of the Court of Appeal.
[2]Guirguis Pty Ltd & Anor v Michel’s Patisserie System Pty Ltd & Ors [2017] QCA 83.
[8] I have not read the reasons of the Judge at the first trial. I have also not read the transcript of evidence of the first trial apart from those parts of the transcript which have been tendered as exhibits in this trial. This is because the effect of the decision of the Court of Appeal is that the matter was to be retried de novo. In short, I have heard and determined the case on the evidence that was heard and tendered before me, and only on that evidence. The trial was heard over five days. Five witnesses gave oral evidence and 176 exhibits were tendered. Exhibits 48 to 61 were tendered as original evidence only. The exhibits include the transcripts of the evidence of Gordon Robertson, Elizabeth Vale, Christopher McDowall, Peter Haley, and Elia Lytras. They each gave evidence at the first trial and the transcripts of their evidence were tendered by consent. [3] They did not give evidence at the trial before me.
[3] Exhibits 164, 165, 175 and 176.
[9] The plaintiffs’ claims against the fifth and sixth defendants were discontinued shortly prior to the commencement of the trial before me and they therefore were not represented at the trial.
[10] In paragraph 36(b) of the Second Further Amended Statement of Claim (‘the statement of claim’), Mr Dellit and Mr Metzakis as the fourth and sixth defendants respectively, are alleged to be personally liable as parties involved in the alleged contraventions of the Australian Consumer Law in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (‘the ACL’). At the commencement of oral submissions, counsel for the plaintiffs conceded that personal liability on the part of Mr Metzakis and/or Mr Dellit was not made out on the evidence.[4]
[4] T5-3, ln 12-34.
[11] The plaintiffs’ case is that in early 2012 there were certain oral and written representations made on behalf of RFG about the quality, the range and the frequency of delivery of products from Brisbane. It is claimed that these representations were relied on in entering into the Franchise and Related Agreements. It is alleged there was no proper basis for making the representations and therefore they were misleading or deceptive in breach of s 18 of the ACL. It is further alleged there were failures by RFG to inform the plaintiffs of certain matters concerning the capacity to supply the Patisserie with products from Brisbane, which were inconsistent with the representations and were also misleading or deceptive. Based on these contraventions of the ACL, the plaintiffs claim damages or other compensation under ss 236, 237 and 243 of the ACL. They claim to have suffered loss and damage on the basis that they would not have entered into the Franchise and Related Agreements absent the contravening conduct. Further, a declaration is sought to the effect that the Franchise and Related Agreements are void, and unenforceable against the plaintiffs given that they were induced by conduct in breach of ss 4 and 18 of the ACL.
[12] RFG’s counterclaim seeks to recover as against the first plaintiff the financial losses for unpaid franchise fees, marketing contributions and other costs incurred as a result of the first plaintiff abandoning the Patisserie. The total amount claimed is $650,552.24. In the event it is found that the representations were in fact made to the plaintiffs as is alleged, a further counterclaim, to which Mr Dellit is also a party, is premised on the misstatements by the plaintiffs in the Questionnaire and the Deed of Prior Representations, and the warranties in the Franchise Agreement. In that event, the plaintiffs are said to be liable for the loss and damage resulting from the misstatements and/or warranties. Further, there is a claim against the second plaintiffs on the basis of their obligations under their guarantees.
RFG and its systems
[13] RFG is a multi-brand franchisor with a component of vertically integrated manufacturing businesses. Apart from Michel’s Patisserie, it is also the franchisor for other brands, namely BB’s Café, Donut King, Brumby’s Bakery, Pizza Capers, Crust Gourmet Pizza, It’s A Grind, The Coffee Guy and Café2U. It has approximately 1,700 franchises operating in Australia. RFG supplies products to the franchises through third party distributors, with the principal distributor being Australian Baking Supplies (‘ABS’).
[14] In 2012, Gary Alford was responsible for RFG’s manufacturing and wholesaling. He explained that RFG had two distinct supply models. These were based on the location of a franchise in relation to a bakery which made and supplied RFG products. Those franchises which were within a three hour drive from a supply bakery, received fresh products on a daily basis. This was known as the daily fresh model. All other franchises operated on the regional model. This meant the products were delivered frozen. The products were manufactured daily but then frozen in one of two ways. One was by placing the product in a tunnel freezer. This had the effect of freezing the product within 20 to 25 minutes. It was generally used for the larger cakes. This method of snap freezing was thought to help retain the moisture in the cake. The other way of freezing a product was to place it in a general freezer, where the freezing process would take some two to three hours. This was generally used for savoury items.
[15] Mr Alford explained in evidence that by April 2012 it was considered that the regional model was the more desirable model. A decision had been made that every new franchise would have freezers installed to store frozen products. The advantages to RFG of this model were that it was cheaper and it was thought to be a more reliable and consistent model. The advantages to the franchisees were that it enabled them to have better control over the costs of the products and stock rotations.
[16] Michel’s Patisserie franchises first commenced operating in regional Queensland in 2008. The first two locations were in Yeppoon and Bundaberg. From this time, these franchises were supplied with their frozen products from bakeries in South Granville in western Sydney. In 2010, the supply of frozen products to the regional Queensland franchises moved from Sydney to Dyson Cakes in Brisbane (‘Dyson’). Deliveries were being made weekly to the Michel’s Patisserie Queensland regional franchises.
[17] In early 2012, the products for Michel’s Patisserie franchises in Queensland were still being made and supplied by Dyson. However, the contract expired in February 2012. There were ongoing negotiations regarding new contract terms. Mr Alford explained that on 20 February 2012, RFG became aware, through the lawyers for Dyson, that it was experiencing a cash flow problem on account of a large waste water bill. Dyson requested a forward payment for products it had made after the expiry of the contract. $54,000 was forwarded from RFG to Dyson, on the condition that representatives from Dyson attended a meeting the following day. Mr Alford and the then CEO of RFG were present at the meeting with representatives from Dyson and its lawyers on 21 February 2012. RFG provided to Dyson a further $57,000, after being assured that the need for this money was on account of a temporary cash flow - and not a solvency - problem. In an email to Dyson later that day, it was stated that the payments to Dyson had been made to ensure ongoing supply of products to franchisees. This was in circumstances where Dyson had previously threatened to cease supplying the products.[5]
[5] Exhibit 141.
[18] On 16 March 2012, the lawyers for Dyson informed RFG that it would not be continuing to make and supply products for RFG after 16 April 2012.[6] Mr Alford gave evidence that he thought this may have been a negotiation tactic being employed by Dyson in relation to the new contract. As a matter of precaution RFG began speaking with other potential suppliers.[7] In the early evening of 2 April 2012, RFG received correspondence to the effect that Dyson had gone into liquidation. RFG immediately reverted back to using bakeries in New South Wales to make and supply frozen products to Queensland’s regional Michel’s Patisserie franchises. These bakeries were already supplying products to regional franchises in southern New South Wales and northern Victoria. The products continued to be made from the same recipes.
[6] Exhibit 123.
[7] T4-32, ln 15-35.
Background facts re Patisserie
Pre-contractual negotiations
[19] Mr Guirguis holds tertiary qualifications in occupational health and safety. His work generally required significant travel. He was looking to acquire a business locally in Townsville to enable him to spend more time with his family. His preference was the acquisition of a franchise business as they had limited small business experience. He was interested in a coffee shop although he did not want to be limited to selling cakes. He looked at a number of franchise coffee shops including The Coffee Club, Gloria Jeans and Jamaica Blue. His enquiries with respect to the Jamaica Blue franchise progressed to a fairly advanced stage. The first plaintiff was initially incorporated with the intention of it being used to operate a Jamaica Blue franchise. This did not eventuate. It was ultimately the vehicle by which the Guirguises gave effect to their plans for the Patisserie. I shall from time to time refer to the Guirguises as running the business, even though in reality it was the first plaintiff company.
[20] In late 2011, Mr Guirguis recalled reading an advertisement in the Townsville Daily Bulletin for a Michel’s Patisserie franchise. He responded to the advertisement by telephoning the listed mobile number, which was Mr Metzakis’s. He was a business broker authorised by RFG to provide information to prospective franchisees about RFG’s franchise system. Mr Guirguis was told by Mr Metzakis that RFG were keen to open a franchise in Townsville and it was considering a number of potential shopping centres, including Stocklands Shopping Centre (‘Stocklands’). This was the most desirable location for Mr Guirguis, as he had been working there in his employment with Laing O’Rourke.
[21] Following this discussion, Mr Guirguis said that he kept in touch with Mr Metzakis and he subsequently learnt that RFG had secured a lease at Stocklands.
[22] Mr Metzakis first met Mr Guirguis in January 2012 at the Coffee Club in Brisbane city. There were ongoing discussions between them over the coming weeks. At no stage did Mrs Guirguis have any contact with Mr Metzakis. Her husband researched potential franchise opportunities and conducted the negotiations to enter into the Franchise and Related Agreements. He kept her appraised of developments and they discussed them.[8]
[8] T3-32 to 3-33; T3-38 to 3-39.
[23] On 25 January 2012, Sue Graham, a franchise sales assistant, forwarded an email to Mr Guirguis. It stated that further to his communications with Mr Metzakis, she was attaching a Franchise Application document (31 pages) to be completed and signed, a Disclosure Document (approximately 250 pages) also to be signed, and an information letter outlining the application process once an application had been received. The Disclosure Document incorporated a copy of the proposed Franchise Agreement.
[24] The Franchise Application was completed and signed by Mr and Mrs Guirguis. In this document they responded affirmatively to a question enquiring as to whether they had read the Disclosure Document and example Franchise Agreement. Section 3.5 of the Franchise Application is titled “Representations” and states “Please record any additional statements or representations made to you about the system or business that you have relied upon (please specify the statement or representation made and who made it – feel free to add additional pages).” The Guirguises left this blank but confirmed at the bottom of the page that they had completed Section 3 in full. It is recorded that it took three hours and one minute to complete.[9]
[9] Exhibit 23 at p 1428, 1430, 1443; T2-18, ln 32-47.
[25] On 31 January 2012, the Franchise Application was returned to RFG. Around this time, Mr Metzakis emailed to Mr Guirguis a Store Budget Estimate that had been provided to him by Mr Dellit.[10] Mr Guirguis was notified by RFG on 13 February 2012 that their Franchise Application had been approved.[11]
[10] Exhibit 24.
[11] Exhibits 27-29.
[26] Mr Guirguis subsequently attended RFG’s offices at the Gold Coast. It was his understanding that he would be interviewed on this day. He met Mr Metzakis in the foyer and was introduced to Mr Dellit. After this, Mr Dellit took Mr Guirguis into a small room where there were some discussions. Mr Dellit had commenced employment with RFG in approximately early 2011. At the time of these subject events, he was RFG’s Regional Leasing Executive for Queensland and the Northern Territory. His primary responsibilities involved identifying gaps in the market for potential new franchises for the variety of brands that RFG had at the time. He also negotiated leases.
[27] On 16 February 2012, RFG emailed to the Guirguises a letter. It relevantly enclosed the Franchise Grant Documentation, which included the Deed of Prior Representations & Questionnaire, the Franchise Agreement and the Outlet Licence Agreement. It stated that the Disclosure Document and a Supplementary Disclosure Document had been forwarded by email earlier that day. As to the Deed of Prior Representations & Questionnaire, the letter states the following:
“Your Application for Franchise was approved subject to, among other things, we being satisfied with the answers given by you to the questions contained in the Questionnaire and Deed of Prior Representations together with the outcome of an exit interview (where required by us).
Should a dispute arise as to the basis of your entry into the Franchise Grant Documentation, the Deed of Prior Representations may restrict you from relying upon any information unless it is contained in Franchise Grant Documentation, the Premises Disclosure or the Franchisor’s Disclosure Document, or otherwise recorded or disclosed by you in the Questionnaire or Interview.
You should discuss the terms and effect of the Deed of Prior Representations with your solicitor. In the meantime, we note that the Questionnaire will allow you to place ‘on the record’ and information that you have relied upon in proceeding with the transaction.
It will also allow us to clarify any incorrect information at any early stage in our relationship with you.
The Questionnaire is therefore of paramount importance to both parties. Accordingly, we ask that you take the time provided to consider answers to the questions asked of you. If the Questionnaire is not completed to our satisfaction then you may be requested to complete another one, or alternatively, our approval of your Application may be withdrawn.”[12]
[12] Exhibit 88 at p 1978.
[28] It was recommended that the Disclosure Document and the Deed of Representations be discussed with their legal and financial advisers and that the Form A Acknowledgment contained in the Disclosure Document be signed and returned.
[29] Mr Guirguis explained that he and his wife read the various documents but were concerned that they tended to favour RFG’s interests rather than a franchisee. The Questionnaires were completed on 16 March 2012. Mr Guirguis completed and dated his. He also completed his wife’s Questionnaire in her presence. The responses provided by the Guirguises to the various topics in the Questionnaire is discussed in further detail below.
[30] Arthur Browne had been the Guirguis’s solicitor and they met with him at his offices on 19 March 2012 to discuss the paperwork. He looked through it. He agreed with their concerns that the documents favoured the rights of RFG. Mr Guirguis’s uncontested evidence was that Mr Browne said to them ‘If you sign this, there’s no way known you’ll ever get out of it; it’d just about be impossible.’[13]
[13] T1-46, ln 5-15.
[31] Mr Browne advised them that while they seemed to have quite a bit of information about the coffee side of the business, that further enquiries were required regarding the bakery and cake side of the business. The nature and extent of the legal advice is discussed in further detail below.
[32] Later that day, Mr Guirguis forwarded an email to RFG. It stated that their solicitor had a few problems with the proposed Franchise Agreement and a few questions needed to be answered before it would be signed. One such question related to the list of products that the Patisserie would be selling and what the profit margins would be. The response provided was that because it was going to be a new store, RFG was unable to estimate the profit margin. The response also reiterated the importance of seeking independent legal and financial advice.[14] Mr Guirguis explained that it was important for them to be provided with a copy of the price list as they needed to know how much it was going to cost to purchase the products from RFG and what they could sell them for.[15]
[14] Exhibit 36.
[15] T1-52, ln16-20.
[33] By email dated 21 March 2012, Mr Metzakis informed Mr Guirguis that he had been speaking with the franchisee for the Yeppoon patisserie and she had commented that she sold a lot of frozen large cakes that were then taken to destinations like Mt Isa, Mackay and Townsville and she had said that the larger cakes travelled really well without losing their taste and freshness.
[34] On the following day, Mr Dellit emailed to the Guirguises RFG’s price list dated 1 July 2011 in response to Mr Guirguis’s email of 19 March 2012. It is apparent from Exhibit 147 that it was Mr Szysz who provided to Mr Dellit the price list and the information regarding the freight costs for regional stores.[16] The Guirguises appreciated that the price list could change from time to time.[17]
[16] Exhibit 35.
[17] T2-8, ln 28-29.
[35] The Guirguises had their accountants provide advice about a number of accounting related matters. They prepared a Monthly Cash Forecast for the 12 months from May 2012.[18] Mr Guirguis explained in his evidence that he provided the requested documentation to his accountants and did not know the information relied upon by them in preparing the Monthly Cash Forecast. His evidence was that while he placed some reliance on this, it was not significant as he appreciated that it was nothing more than a forecast.[19] Mrs Guirguis was unsure of the information provided to the accountants. She thought they may have given the accountants information regarding the amount of rent that was to be paid for the Patisserie. She agreed that the document showed the Patisserie potentially making a profit and that she read it prior to signing the Franchise Agreement. She thought it helped inform her decision about entering into the Franchise Agreement.[20]
[18] Exhibit 34.
[19] T2-10, ln 1-33.
[20] T3-57, ln 1-31.
[36] On 23 March 2012, an email addressed to ‘Dear Franchisee’ was intended to be forwarded by RFG to all franchisees in Queensland. The Guirguises did not receive it. It was to the effect that there was going to be a need to change the Michel’s Patisserie Bakery model as there had been a number of instances where bakeries across Australia had not been able to meet their contractual requirements and operate and produce products for RFG stores. The main reason for their failures were difficulties with financial viability. It explained that on 16 March 2012, the solicitors for Dyson had indicated that it would no longer be supplying products to Michel’s Patisserie’s Queensland stores after 15 April 2012. The email foreshadowed as a worst case scenario, a potential short term interruption to the supply of some products, in particular special orders. It was recommended that stores did not take any special orders after 15 April 2012 for a period of two weeks.[21] RFG was looking at whether it could take possession of the Dyson premises at Capalaba and operate the bakery in its current form.
[21] Exhibit 3.
[37] Mr and Mrs Guirguis returned to see their solicitor, Arthur Browne on 26 March 2012. He was not available and they instead spoke with Arthur’s son, Terrence, who was also a solicitor. The Guirguises enquired as to whether Arthur had left a message for them and Terrence said that he had not. They did not go through or discuss any of the paperwork with Terrence or any other lawyer on this occasion.[22]
[22] T1-48 to 1-49; 3-52.
[38] In the presence of Arthur’s daughter, Joanne, the Guirguises signed the paperwork. This included the Franchise Agreement, Questionnaires and Deed of Prior Representations, Financial Advice Report, the Form D Advisor’s Certificate (‘Independent Solicitor Certificate’) and the Form C: Section 11 Warranty.
[39] It was Terrence Browne who completed the Independent Solicitor Certificate on the same day. It reads that on 19 March 2012 he had met with the Guirguises. It further provides that on that date they had provided him with the Franchise Disclosure and Grant documents, including the Deed of Prior Representations. In relation to those documents it states that Terrence had inter alia explained the legal and practical nature and effect of the documents and that the Guirguises had provided him with certain information, including that they had understood the general nature and effect of the documents and that his advice on the obligations and risks involved in signing the Franchise Grant documentation was understood by them.[23] None of this was in fact accurate. He had not even met with them on 19 March 2012. It was his father who had met with them on this earlier occasion. Mrs Guirguis’s evidence was that Terrence Browne did not discuss with them any of the matters referred to in the Independent Solicitor Certificate.[24]
[23] Exhibit 32.
[24] T3-52, ln 45-47.
[40] The effect of Mr and Mrs Guirguis’s evidence was that while Arthur looked at the various documents, that they were not provided with any significant explanation regarding matters which are material to this claim. This is discussed in further detail below.
Signing of Franchise Agreement and events prior to Patisserie opening
[41] As discussed above, the Franchise Agreement and other documents were signed by Mr and Mrs Guirguis on 26 March 2012. The Guirguises did not seek any advice subsequent to signing the Franchise Agreement and before opening the Patisserie about whether they could get out of or terminate the Franchise Agreement.[25]
[25] T2-19, ln 39-42.
[42] On 28 March 2012, a further email was forwarded by RFG to all franchisees in Queensland. The Guirguises did not receive it. The email indicated that it was looking unlikely that RFG would be able to take possession of the current Michel’s Patisserie bakery premises at Capalaba and it was hoped that there would be confirmation of this in coming days. It went on to state that while a range of bakery products had been sourced from an alternative supplier, it was at that time not possible to provide a definitive list of which products would and would not be available. As the supply of special order cakes was in question, it was recommended that franchisees contact customers who had already ordered wedding and christening cakes and make an offer of a full refund.[26]
[26] Exhibit 4.
[43] RFG wrote to Mr and Mrs Guirguis on the same day acknowledging the receipt of their Franchise Grant Documentation. It noted that the documentation had not yet been submitted to the Franchisor and Licensor for execution and that a copy would be returned to Mr and Mrs Guirguis once they had been signed and dated. The letter enclosed the Form C Warranty for a date to be inserted in it and also the Outlet Agreement which had not been executed by the Guirguises. The letter further invited the Guirguises to complete a fresh Questionnaire if they felt the ones they had already completed were not accurate.[27] Mrs Guirguis’s evidence was that she could not remember reading this letter but thought she would have read it. She did not know whether she would have appreciated the significance of the contents of it, particularly given that she would not have read it until after she had already signed the Franchise Agreement.[28]
[27] Exhibit 89.
[28] T3-58 to T3-59.
[44] Two days later, a further email was forwarded by RFG addressed to all franchisees in Queensland. The Guirguises did not receive it. The email indicated RFG was cautious as to whether special orders to be delivered between 6 and 15 April 2012 would be honoured. It recommended that franchisees not order wedding and christening cakes during these dates or if they had been ordered, to explain to customers that they could not be delivered. It went on to say that after this time, wedding and christening cakes would not be available until further notice. Franchisees were also informed that web orders would be disabled from 14 April 2012 until further notice. It was recommended that customers be told that the current bakery was not able to supply stock and that Michel’s Patisserie was working on resolving the supply issue. They were told that an information session for all Michel’s Patisserie Queensland franchisees would be held on 10 April 2012 to which they were all invited.[29] The Guirguises were unaware of this meeting.
[29] Exhibit 5.
[45] Mrs Guirguis commenced her training with RFG at their Gold Coast offices on 2 April 2012. It went for four weeks and three days. This was the first occasion she had spoken to or otherwise communicated with anyone from or on behalf of RFG. The training included instruction regarding the ordering of special cakes, making coffee, keeping accounting records and operating the register.[30]
[30] T2-71, ln 33-43.
[46] On the same day a further email was forwarded by RFG addressed to all franchisees in Queensland. The Guirguises did not receive it. It informed the franchisees that RFG had just been notified that Dyson has been placed into liquidation, with the result that stocks would not be delivered to stores on the following day.[31]
[31] Exhibit 6.
[47] On the same day, the franchisees were informed in a further email that special orders would be unable to be delivered at this point in time. It was suggested that any customer with a special order delivery scheduled up until 12 April 2012, be offered a sincere apology and a refund.[32] A day later there was a further email update to the franchisees. This was to the effect that RFG had been working towards a number of options to resolve the situation by 16 April 2012.[33] The Guirguises did not receive either of these email communications.
[32] Exhibit 8.
[33] Exhibit 9.
[48] There were a further two emails forwarded on consecutive days a week later to franchisees in Queensland. Once again the Guirguises did not receive them. The first one is dated 11 April 2012, advising that RFG had noted that a number of items such as muffins and pastries had not been delivered when ordered by stores. It was stated that it was expected that this situation should be improved.[34] The second email is dated 12 April 2012. It explained that RFG had been persuading a number of suppliers to produce mud cakes which had been received by RFG, but were found not to be finished to a suitable standard. It was explained that the condition of some of these cakes were such that they could not be distributed at all and others were being offered to franchisees at 50% of the standard price. Franchisees were reassured that the supplier would be rectifying this. RFG apologised on behalf of the supplier.[35]
[34] Exhibit 11.
[35] Exhibit 12.
[49] In the week beginning 16 April 2012, while Mrs Guirguis was still at the training course, a male representative from RFG informed her that the bakery which had been supplying the franchises had gone into liquidation but that RFG was in the process of sourcing another bakery.[36] She said that he ‘made very light of it’.[37] This was the first time the Guirguises became aware of potential problems obtaining bakery supplies from Brisbane. Mrs Guirguis remained at the training course until 2 May 2012 and was not provided with any further information as to these problems. She told her husband of this development. It was Mr Guirguis’s recollection that his wife told him that a bakery in Brisbane had gone into liquidation. It was his understanding that there was more than one bakery in Brisbane supplying Michel’s Patisserie products to the franchises.[38]
[36] T2-72, ln 3-10.
[37] T4-42, ln 32-37.
[38] T2-20, ln 35-46.
[50] On 17 April 2012, there was a further email communication from RFG to franchisees in Queensland. It was not forwarded to the Guirguises. It stated that RFG was aware of the adverse impact caused to Michel’s Patisserie franchises by the abrupt closure of Dyson. It further stated that RFG had initiated the necessary legal action against Dyson. It was recommended that franchisees ascertain whether they could make an insurance claim for losses sustained as a consequence of this. It told them that as a gesture of goodwill, RFG would be waiving receipt of franchise service fees and would not be deducting the marketing levies for the week ending 12 April 2012.[39]
[39] Exhibit 13.
[51] Ten days later, on 27 April 2012, there was a further email communication to franchisees in Queensland. It was not forwarded to the Guirguises. It advised that RFG would be providing cash flow relief to Michel’s Patisserie franchises in Queensland by deferring in part the collection of franchise service fees for the week ending 19 April 2012.[40]
[40] Exhibit 14.
[52] On the same day, RFG forwarded a memorandum to all Australian Michel’s Patisserie franchisees. This memorandum was not provided to the Guirguises. It explained that there had been a failure of several bakery operators, both prior to and following RFG’s acquisition of the Michel’s Patisserie system. In particular, they were told that bakery operators in New South Wales and South Australia who were related entities, had been placed into administration in January 2012. It was stated that it was manifestly apparent that the Michel’s Patisserie model required change for long term relevance and sustainability. It was proposed that the new model would be implemented over the coming two to five years. The new model was envisaged to include the introduction of multiple suppliers, whereby products manufactured in several locations (by separate suppliers) would be delivered to a central point for collection, finishing (where necessary) and distribution.[41]
[41] Exhibit 17.
[53] On 4 May 2012, there was a further email communication to franchisees in Queensland. It was not forwarded to the Guirguises. It stated that due to the continuing bakery supply interruption issues from the failure of Dyson, RFG would be providing ongoing cash flow relief to Michel’s Patisserie franchises in Queensland by again deferring in part the collection of franchise service fees, this time for the week ending 26 April 2012.[42]
[42] Exhibit 15.
[54] Two days later, unaware that RFG had been corresponding with franchisees about bakery supply issues and concerns about the sustainability of the Michel’s Patisserie model, Mr Guirguis forwarded an email to Mr Dellit raising concerns that he was not hearing back from RFG. He requested a current price list. His email also raised that it was his understanding that one of the cake suppliers had gone into liquidation and that it may be necessary to get cakes out of Sydney. He expressed a further concern that the freight costs from Sydney were likely to be high given that the Patisserie was in Townsville. Mr Dellit responded two days later to the effect that the appropriate people from RFG should be getting back to him regarding this issue by close of business. This never occurred.
[55] On 11 May 2012, there was a further email communication to franchisees in Queensland. It was not forwarded to the Guirguises. RFG advised that it was intended that the full franchise service fees for the weeks ending 3 May 2012 and thereafter would be directly debited. It also explained that from a supply point of view, a new site had been located and inspected at Virginia in Brisbane and it was hoped that a lease would be signed on this day. They were told that once the lease was finalised, it was expected that the site would be used as a distribution centre for all products, and as a decorating and finishing centre for products such as special orders that required dressing. They were informed that an update would be provided when the details were confirmed.[43]
[43] Exhibit 16.
[56] The Fitout Construction Agreement between the builder, the first plaintiff, the second defendant and the third defendant for the construction of the fitout of the Patisserie is dated 12 May 2012.[44]
[44] Exhibit 41.
Operation of the Patisserie
[57] The Patisserie commenced trading on 28 May 2012. This is also the date of the Franchise Agreement and the Outlet Agreement between the first plaintiff and the second defendant. Stocklands was not operating at full capacity at the time as it was undergoing a major renovation. A number of stores including Myer were scheduled to open in October 2012.[45] The Patisserie was located just outside the doors of Woolworths which had only recently re-opened. There were a number of other coffee/café type stores within Stocklands. Gloria Jeans was close by and there were others in the food court, which was about 200 metres from the Patisserie.
[45] These stores are marked in blue in Exhibit 1.
[58] It was intended that Mr Guirguis would only work in the Patisserie on weekends. This is because he was still working in a senior role for Laing O’Rourke.
[59] From the time the Patisserie commenced trading it had a cold room with a fridge and freezer not far from the store. RFG had arranged for their installation. The temperatures of the fridge and freezer were monitored by a digital display. The temperature for the freezer had been set by RFG.[46] On no occasion were the Guirguises shown how to alter the temperature and as far as they were aware, they were unable to alter it.[47] Exhibit 171 is a sketch drawing of the cold room by Mrs Guirguis. It depicts the fridge and freezer and the digital temperature displays.
[46] T1-67, ln 41-47.
[47] T2-77, ln 14-18.
[60] Ryan King was the Business Development Manager from RFG who was assigned to assist the Guirguises with the set up and establishment of the business. He was present for the first couple of days of trading. He set up the cold room, he placed the first order of products and unloaded the first delivery of products. This delivery was a substantial one.
[61] After the first week of trading Mr Guirguis forwarded an email to Mr Dellit raising a number of comments, questions and suggestions as to RFG’s opening processes.[48] It included the fact that too much stock had been ordered. He observed that the product was acceptable but nothing special, and that he would be able to source similar product from any number of other bake houses. By an email dated 4 June 2012, Mr King set out the assistance that he had provided over the previous week. [49] Mr Guirguis did not accept in evidence that Mr King had provided this claimed level of assistance. [50]
[48] Exhibit 168.
[49] Exhibit 85.
[50] T1-76, ln 12-28.
[62] As to the frequency of the deliveries, in his email Mr Guirguis sought confirmation that they were going to be weekly. This is because Mr Guirguis had been told by Mr King on the last day he was at the Patisserie that the deliveries would be changing to fortnightly.[51] There is no evidence of any response to this.
[51] T2-12, ln 17-38.
[63] Mr King did not return to the Patisserie. Eric Woodham subsequently took over his role. Mrs Guirguis was responsible for the day to day operation and Mr Woodham would visit every three or so weeks.
[64] As to the unloading of the deliveries, Exhibit 1 shows that Stocklands had two delivery docks, one was adjacent to Woolworths and only a short distance from the cold room and the Patisserie. The other was at the opposite end of the shopping centre near Best & Less. Stocklands was air-conditioned. Deliveries for the Patisserie were routinely made via the loading dock adjacent to Woolworths. The delivery trucks would park at the top of the loading dock, close to the entrance. Once through the entrance the products would be wheeled along a short air-conditioned walkway to the cold room where they would be unloaded. After the first week of trading, Mrs Guirguis was responsible for the majority of the deliveries. Her evidence was that the products would usually be unloaded at one time.[52] She explained that most drivers would remain in the truck with the air conditioning going until she returned to collect the remainder of the products, if necessary.[53]
[52] An exception was the order of 19 October 2012. It was a large delivery in anticipation for the opening of Myer.
[53] T3-60 to T3-63.
[65] Mrs Guirguis would usually but not always check the quality of the products when they were being unloaded into the freezer.[54] There were occasions when time did not permit this and she would instead check them later that day, or perhaps even the following morning. Mrs Guirguis’s evidence was that she thought it was in the first few weeks that she initially noticed that some of the products were damaged.[55] Those products had been part of the first delivery which had been ordered and unloaded by Mr King. Damage to the products included splits through the middle, freezer burns and/or an appearance of a cake having melted and being refrozen. She would photograph them, usually write a credit request and throw most of them away.
[54] T2-91, ln 27-30.
[55] T2-91, ln 24-25.
[66] There is a document called the Storage Temperature Record which provided for the recording of temperatures twice daily, including the freezer in the cold room. Mrs Guirguis explained that limited time was devoted to the completion of this document during her training. She had not been told whether it was the temperature before or after the freezer door had been opened which needed to be recorded. [56] Her evidence was that the Storage Temperature Record document that was used for the purposes of the training was not completed every day.[57] Mr King did not keep any such record in the week he was at the Patisserie. Mrs Guirguis’s evidence was that on no occasion did Mr King or Mr Woodham discuss this document with her.[58]
[56] T3-72, ln 5-13.
[57] T3-72, ln 1-3.
[58] T3-66, ln 34-42; T3-71, ln 23-24.
[67] It was in mid-June 2012 that the Guirguises commenced recording the freezer temperature on the Storage Temperature Record. However, as Mrs Guirguis explained, while she would look at the reading daily, she would not always record it. The document shows that the records were commenced from 12 June 2012 with the final reading recorded on 21 July 2013. The longest period over which no record of the freezer temperature was made was 14 days.[59] The entries on the record were made by either Mrs Guirguis or the store manager, Aiden.
[59] Exhibit 104.
[68] The Storage Temperature Record shows that on most days when the freezer temperature was recorded, that it would be between -16 and -18 degrees Celsius. However, it was far warmer than this between 14 and 16 November 2012. Mrs Guirguis explained that the reason for this is because Mr Woodham had been present at the store on 14 November 2012, and had accidently turned the power off to the cold room. This was not discovered until some three hours later. It could not be fixed until 16 September 2012.
[69] As to the delivery of the products between Sydney and Townsville, there was no consistent process being followed. Sometimes they were unloaded and reloaded along the way and there was often more than one transport company involved. The transport time would vary between deliveries. The consignment notes that are in evidence show that the products were being transported by JL Stewart & Sons from western Sydney to a Blenners Transport depot in Darra. They were then being unloaded. On some occasions they would be transported on the same day by a different transport company, Kercat Freight Services from the Blenners Transport depot in Darra to Stocklands. On other occasions, the products would remain at the Darra depot for up to two days before being transported to Stocklands.[60] There were occasions between October 2012 and February 2013 where the delivery process between western Sydney and Townsville took between three and seven days.[61]
[60] Exhibit 107 at p 112-114.
[61] Exhibit 107 at p 79-80, p 109-121, 126-128.
[70] Special cakes such as wedding, christening and birthday cakes would be placed in a separate order from the other orders. Mrs Guirguis explained that a number of these orders were either delivered late or not delivered at all.[62] This is addressed in further detail below.
[62] Exhibit 108 at p 2, 3, 4, 5, 6, 12; T3-22 to T2-26.
[71] By email to RFG dated 2 July 2012, Mr Guirguis detailed a number of problems with the cakes that were being delivered and the range of products that were available. The email addressed the complaints to Mr Dellit. The complaints included the fact that since Dyson had gone into liquidation, they had been unable to source a lot of products which they had been informed were available at the time they signed the Franchise Agreement. It went on to say that the price list they had been given on 21 March 2012 had two pages of products, whereas the new Sydney bakery was only offering products listed on a one page document.[63]
[63] Exhibit 48.
[72] In an email to RFG dated 7 July 2012, Mr Guirguis included the following complaint:
“So now our large cakes take way too long to get to our store, we can’t have icing sugar, cream or photos on the cakes. They arrive thawed out and most (I have all the photos to prove this) of the cakes small and large arrive in a poor state so bad that most can NOT be sold. Also as I have stated before some of your products are just too dry and we get a lot left on the plate or returned.”[64]
[64] Exhibit 51 at p 1727.
[73] In response to this RFG explained that in relation to cake types, they were able to order cream and photos on the cakes, but they could not order cakes with white icing as when those cakes thawed out the white icing would dissolve.[65]
[65] Exhibit 51 at p 1725.
[74] There is a further email from Mr Guirguis dated 13 July 2012. It included a complaint that the order which had arrived on that date was defrosted. It went on to explain that the truck it arrived in was only a fridge and not a freezer truck. It stated that when they walked into the truck to look at the order, the inside of the truck was warm and it felt like the fridge had been off for some time. He went on to say that the whole order needed to be credited.[66]
[66] Exhibit 50.
[75] In an email to RFG dated 24 July 2012, Mr Guirguis stated that he had spoken with JL Stewart about the stock arriving defrosted.[67]
[67] Exhibit 52.
[76] On 31 July 2012, Mr Guirguis forwarded a further email to RFG. He stated that not only were they getting stock that was defrosted, but that the cakes were also being delivered in very poor condition. He raised a concern that it seemed that the stock was being loaded and unloaded between three or four times from the time it left the bakery supplier in Sydney until it was unloaded at Stocklands.[68]
[68] Exhibit 49.
[77] By early August 2012, sales in the Patisserie were improving. Despite this the Guirguises still wanted to sell it and advertised it for sale. Mr Guirguis denied that the reason for this was because his wife was finding the Patisserie stressful and not enjoying it.[69] He changed employment around this time. This is addressed in further detail below.
[69] T2-49, ln 23-27.
[78] By email dated 22 September 2012, Mr Guirguis informed Mr Szysz that the stock they were receiving was always in a poor state and was not frozen. He also stated that the last six special orders had not been delivered on time. Mr Guirguis said that they would be broke by December 2012, and that they had been forced to make sandwiches to fill their display cabinets.[70]
[70] Exhibit 53 at p 1749.
[79] Mr Szysz responded on 25 September 2012, to the effect that Mr Woodham had organised for a data logger to be placed in one of the recent deliveries to monitor the temperature over the entire trip and RFG hoped to be able to review the data that week.[71]
[71] Exhibit 53 at p 1751.
[80] In another email dated the same date, Mr Guirguis complained that the orders were now arriving on a Monday or Tuesday when they should have been arriving four days earlier. He explained that one of the special cakes for a child’s birthday did not arrive on time. He went on to say that Myer was opening on 25 October 2012, and they would try their best to make a success of their business. If they could not on account of continuing supply issues, Mr Guirguis indicated that RFG would need to buy the Patisserie back or they would have no choice but to take legal action.[72]
[72] Exhibit 56 at p 1767.
[81] In evidence is an internal RFG email dated 28 September 2012. It is from Brett Cahill to Sharon Eggins, the Assistant Corporate Retail Manager. It stated that he was aware of the ongoing issues for Queensland regional stores. It went on to explain that JL Stewart were starting to use a new freight company. This was in circumstances where the previous carrier, Charters, had folded. He commented that there was no doubt that this had contributed to the poor level of service seen over the previous few weeks. Mr Cahill went on to explain that the owner of the new transport company had previously worked for Charters and was fully aware of the thawing and other issues causing damage to the products and also that the products were not being delivered on time. It stated that the new freight company had a vested interest in rectifying these issues.[73]
[73] Exhibit 133.
[82] On 2 October 2012, Mr Szysz forwarded an email to Mr Guirguis to the effect that JL Stewart had engaged Scotts as a new frozen courier company and that the deliveries had now been scheduled to arrive at Stocklands each Friday. He also explained that JL Stewarts were committed to using data loggers to assist with monitoring the supply chain temperature variations.[74] The following morning, Mr Guirguis responded to Mr Szysz explaining that the last two orders had arrived at least four days late. Further, there had been six special orders that had not been delivered on time. This had necessitated giving away a total of eight fresh cakes as compensation, resulting in the loss of approximately $600 in sales and some very irate customers.[75]
[74] Exhibit 53 at p 1749.
[75] Exhibit 53 at p 1752.
[83] On account of the ongoing supply and quality issues, in mid-October 2012 Mr Guirguis cancelled the direct debit arrangements for RFG’s franchise service fees and marketing levies.[76]
[76] T2-54, ln 13-29.
[84] In a further email from Mr Guirguis to RFG dated 24 October 2012, he complained that with the most recent order, it appeared that the products had defrosted again along the way. He said that it had taken an hour to get the products to the cold room. Mr Guirguis reiterated that the order needed to be monitored for temperature and that the delivery would not be accepted in the absence of temperature readings.[77] In evidence, Mrs Guirguis explained that the delivery driver had simply unloaded the products and left them on the loading dock in the ambient air.
[77] Exhibit 54 at p 1755-6; Exhibit 88.
[85] By email dated 5 November 2012, RFG advised Mr Guirguis that a meeting had been held the previous week to address his issues. He was told that the aim was for the supply bakeries to have the products in the freezer for two days prior to being transported to ensure they remained frozen on arrival in Townsville. He was also informed that there would be a data logger with the deliveries to Stocklands to monitor the temperature from point to point.[78]
[78] Exhibit 55 at p 1762.
[86] On 6 November 2012, Mr Guirguis responded to RFG. He stated that he did not think the problem lay in the state the products were leaving the bakeries in Sydney. He explained that he considered the transport companies were at fault and that there had been occasions where delivery drivers had left orders on the loading dock for 30 to 45 minutes before notifying them. He again stated that the last four orders had not been delivered in a freezer truck.[79] In evidence, Mrs Guirguis said that she could not recall any such occasion although there had been one instance where the delivery driver had threatened to do this.[80]
[79] Exhibit 55 at p 1763.
[80] T3-63, ln 3-29.
[87] In an email dated 19 November 2012, Mr Guirguis complained that there were occasions where the delivery drivers were unloading at the dock furthest from the Patisserie. This meant that it would take 30 to 45 minutes to get the products to the cold room.[81] This was confirmed by Mrs Guirguis in her evidence. The transport company involved was Blenners. It was her recollection that this company was delivering products to the Patisserie between approximately October 2012 and February 2013.[82]
[81] Exhibit 167.
[82] T3-64.
[88] From the Guirguis’s perspective, there continued to be problems with the quality of the products that were being delivered. Mrs Guirguis explained that prior to unloading the delivery which had been transported by Kercat on 20 November 2012, she placed a commercial temperature probe between the floor of the truck and the underside of the pallet and it recorded a temperature of -1.9 degrees. She wrote this on the Consignment Note.[83] In relation to the delivery on 4 December 2012, she recorded on the Consignment Note ‘-4 on steel pole’. She explained that on this occasion this reading reflected the temperature on a steel pole inside the delivery truck.[84]
[83] T3-10 to 11; Exhibit 107 at p 98.
It is contended by RFG that Mr Guirguis’s greater involvement with the Patisserie was required because the business was more involved than they had expected or because Mrs Guirguis was not capable of properly managing and operating it. It is true that it was not easy for her and operating the Patisserie was more involved than they had initially thought. However, this was attributable in no small way to the problems experienced with the frozen products which RFG had arranged to have delivered to the Patisserie. For example, Mrs Guirguis was required to deal with irate customers when cakes that had been ordered had not arrived. She was also required to source products to purchase from other businesses that she could buy and then sell at the Patisserie. These were required to replace products which had been ordered which had not arrived, or alternatively were of such poor quality that they could not be sold in the Patisserie.
The point is made by RFG that the plaintiffs have not established that the misleading conduct was the cause of Mr Guirguis's greater involvement in the business. However, given this is a ‘no transaction’ case, the plaintiffs bear no such evidentiary burden. What is required to be established and I am satisfied on balance that it has, is that in the absence of the contravening conduct, the first plaintiff would not have acquired and operated the Patisserie. If this had not occurred, Mr Guirguis would have remained working with Laing O’Rourke as HSEQ Manager – Regional, with a total salary package of approximately $250,000. I reject RFG’s submission that any loss must be assessed by reference to the reduced salary of some $210,000. This is in circumstances where I am satisfied that Mr Guirguis would have remained in the more senior positon with Laing O’Rourke had the first plaintiff not entered into the Franchise Agreement.
RFG has made the point that Mr Guirguis is not entitled to recover damages resulting from personal injuries. No such claim has been made. It does not arise just because Mr Guirguis’s evidence was that the demands and stressors of the Patisserie were adversely impacting on his work performance at Laing O’Rourke.
For the abovementioned reasons, I am satisfied that had the first plaintiff not entered into the Franchise Agreement, that Mr Guirguis would have remained working as the Regional HSEQ Manager for Laing O’Rourke earning a gross base salary of $230,000 which equates to a net weekly figure of $2,860.
In the statement of claim, Mr Guirguis’s loss of opportunity claim commences from 1 October 2012. By this time he had moved to Peabody Engineering and was earning a gross base salary of $150,000, which equates to a net weekly figure of approximately $2,000.
I have allowed damages in relation to Mr Guirguis’s loss of opportunity claim until 21 January 2014. This is six months after the Guirguises abandoned the Patisserie. This is because the position occupied by Mr Guirguis was a relatively senior one in a regional location. Realistically he is unlikely to have immediately secured another job of similar seniority. I am not satisfied that any loss after this time can be attributed to the first plaintiff’s entry into the Franchise Agreement. Further, there is no evidence of any attempts Mr Guirguis has made to gain alternative employment.
Allowing a net weekly income of $2,860 for the 2013 financial year for 38 weeks between 1 October 2012 and 30 June 2013 and for the 2014 financial year for 29 weeks between 1 July 2013 and 21 January 2014 gives a total figure of approximately $192,000. As best as can be ascertained, Mr Guirguis was earning a net weekly income over this period of $2,000 per week or a total of $134,000. This results in a shortfall of $58,000. Superannuation on the gross amount of this loss at 9% gives a total loss of some $64,000.
Other relief
RFG does not contend that in the absence of the contravening conduct that the plaintiffs might have entered into the Franchise and Related Agreements upon terms different to those which were agreed. No question therefore arises as to whether an order should be made varying the terms of those agreements. Therefore I am satisfied that pursuant to s 243 of the ACL, it is appropriate to declare that whole of the Franchise Agreement and the Related Agreements are void ab initio.
Counterclaim
There are two parts to the counterclaim. The first part is for unpaid levies due under the Franchise Agreement and for costs incurred because of the abandonment of the Patisserie by the plaintiffs under the Outlet Agreement. This part of the counterclaim is necessarily dismissed in circumstances where I am satisfied that the Franchise and Outlet Agreements are void ab initio.
The second part of the counterclaim is based on a breach by the Guirguises of s 18 of the ACL for not disclosing in their responses to the Questionnaire the representations they relied on. This is despite being asked directly to do so. It is claimed that the same may be said for the warranties given in the Franchise Agreement which can be found in clauses 12.7, 12.28 and 23.12. On this basis, the first, second, third and fourth defendants claim damages or other compensation or relief pursuant to s 236 or s 237 of the ACL. In RFG’s written submissions, the quantum of the damages is said to be equal to the award in favour of the plaintiffs and would therefore entirely offset any judgment for the plaintiffs.
I am of the view that any attempt by RFG to rely on the said responses in the Questionnaire and the clauses in the Franchise Agreement to found such a cause of action cannot be accepted. Their relevance is limited to being a factual element in determining whether RFG engaged in misleading conduct and to matters relevant to causation.
The plaintiffs’ claims have been successful and the defendants are liable. RFG cannot recover damages or other relief for loss and damage caused by misleading and deceptive conduct of the plaintiffs, where the loss or damage is liability in damages to the plaintiffs for misleading or deceptive conduct under the ACL. To give effect to such a claim would circumvent the statutory provisions in the ACL prohibiting RFG from engaging in conduct that was misleading or deceptive or likely to mislead or deceive. It would have the effect of destroying the value of the right of the plaintiffs to damages under the ACL.[239]
[239] Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 at 371; GIO Australia Holding Ltd v Marks (1997) ATPR 43,541 at 43,555; Venerdi Pty Ltd v Anthony Moreton Group Funds Management Ltd [2015] 1 Qd R 214.
Further, RFG cannot merely rely on a statement in a clause in the Franchise Agreement to the effect that it was misled. It would need to be established that they were in fact misled. I am not persuaded of this. This is because the positive representations were made by Mr Metzakis as an agent of RFG, Mr Dellit as an employee of the third defendant, and in an email and price list which had been provided to the Guirguises by Mr Dellit with the knowledge of Mr Szysz, the national operations manager of Michel’s Patisserie.
Summary
It follows from the above mentioned reasons that the plaintiffs have succeeded with their claims and that the Counterclaim is dismissed. Before making formal orders, I will hear the parties as to the form of the orders and the orders that should be made for interest and costs. The Court of Appeal ordered that the defendants were to pay the plaintiffs ‘costs of the appeal. The defendants were granted an indemnity certificate in respect of the appeal under s 15 f the Appeal Costs Fund 1973 (Qld). This leaves the costs of the first trial. Prima facie they should follow the event.
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