Harrison & Anor v Harrington & Anor No. DCCIV-94-1254, DCCIV-94-1391 Judgment No. D3391
[1996] SADC 3391
•23 April 1996
Court
DISTRICT COURT OF SOUTH AUSTRALIA
Judgment of His Honour Judge Worthington
Hearing
23/01/96 to 25/01/96, 29/01/96 to 02/02/96, 05/02/96 to 08/02/96, 12/02/96 to 13/02/96.
Catchwords
NEGLIGENCE - ESSENTIALS OF ACTION FOR NEGLIGENCE Franchise agreement - economic loss - allegation by franchisees (plaintiffs) that franchisors (defendants) engaged in misleading and deceptive conduct - alleged misrepresentation about likely turnover, anticipated trade volume, profitability etc - plaintiffs claim damages for breach of Fair Trading Act, for breach of Misrepresentation Act, in contract and in negligence - credibility of plaintiffs - claim dismissed. Counterclaim by defendants - partly successful.
Materials Considered
• Fair Trading Act 1987 ;
• Misrepresentation Act 1971 , referred to.
• Gould v Vaggelas (1983-1985) 157 CLR 215 ;
• National Australia Bank v Cunningham (1990) ATPR 41-047 ;
• Nominal Defendant v Clements (1960) 104 CLR 476 ;
• R v Hendrie (1985) 37 SASR 581 ;
• R v Szach (1980) 23 SASR 504 ;
• O'Donnell v Reichard [1975] VR 916 ;
• Brandi v Mingot (1976) 12 ALR 551 , considered.
Representation
Plaintiff FRANK HARRISON:
Counsel: Mr J. F. Costello - Solicitors: Strassnick &; Assoc
Plaintiff SUSAN HARRISON:
Counsel: Mr J. F. Costello - Solicitors: Strassnick &; Assoc
Defendant TERENCE HARRINGTON:
Counsel: Mr A. V. Possingham - Solicitors: Jo-Anne N. Milen
Defendant MARGARET HARRINGTON:
Counsel: Mr A. V. Possingham - Solicitors: Jo-Anne N. Milen
DCCIV-94-1254, DCCIV-94-1391
Judgment No. D3391
23 April 1996
(Civil)
JUDGMENT NO D3391
HARRISON & HARRISON v HARRINGTON & HARRINGTON T/as YORKIES PORK SHOP and WHITEROSE PRODUCTS (REG)
FILE NO DCCIV-94-1391
HIS HONOUR JUDGE WORTHINGTON
The defendants, Terence Adrian Harrington and his wife, Margaret Harrington, were the proprietors of a registered business name, "Yorkies Pork Shop and Whiterose Products".At the relevant time, they were producers and wholesalers of pork products.The plaintiffs, Frank Harrison and his wife, Susan Marie Harrison, had some discussions with the defendants about starting a business of their own, in late 1993,early 1994.In February 1994 the plaintiffs opened a shop at Gawler under franchise with the defendants, trading as Yorkies Pork Shop (Gawler).The business failed and the shop was closed in July 1994, with the plaintiffs suffering a loss.
The plaintiffs claim that their loss was due to misrepresentations and/or conduct that was misleading or deceptive on the part of the defendants, which wrongfully induced them to become involved in the enterprise.They seek substantial damages in the alternative for breach of ss54 and 56 of the FairTrading Act, 1987, breach of s7 of the Misrepresentation Act, 1971,breach of contract and negligence.The defendants deny liability and by counterclaim, seek damages for loss caused by the plaintiffs' denigrating comments about the defendants' business.They also seek payment by the plaintiffsof two outstanding matters namely, the legal costs incurred inpreparation of the franchise agreement and monies still owing for some produce delivered by the defendants to the plaintiffs.
1. OUTLINE
2. MATTERS OF GENERAL APPLICATION
2.1 AFTER 3 FEBRUARY 1994
2.2 CREDIT
3. MYPONGA
3.1 MR HARRISON'S EVIDENCE
3.2 MRS HARRISON'S EVIDENCE
4. THE TRIP NORTH
5. ANALYSIS OF MYPONGA AND THE TRIP NORTH
5.1 THE SELECTION OF GAWLER
5.2 RECOMMENDING GAWLER
5.3 PRODUCT AND EQUIPMENT LIST
5.4 TURNOVER PREDICTIONS
5.5 ADVERTISING FOR A GAWLER FRANCHISE
5.6 DESCRIPTION OF GAWLER
5.7 SALISBURY BUTCHER SHOP
6. THE DEFENDANTS AT GAWLER IN NOVEMBER
7. SOME OTHER WITNESSES
7.1 MRS DAVIES
7.2 MRS TUMICZ
7.3 MRS KENNY
7.4 MR KENNY
8. SUNDRY MATTERS
8.1 THE FINANCIAL STATEMENTS
8.2 SOUR PIES
8.3 AVOIDING TAX
9. CLAIM
10. COUNTERCLAIM
1. OUTLINE
Mr and Mrs Harrison came to Australia from the United Kingdom in 1969.Apart from a period of about six months in 1974/75 when they were in England and in Perth, they lived in the southern districts of Adelaide until early 1994. Immediately after leaving school, Mr Harrison was a butcher's apprentice for about 18 months.Other than that, he worked in the United Kingdom and Australia in the field of power generation inpositions such as boiler attendant, engine driver, etc.He only worked as an employee and prior to 1994, he had never been self-employed.By 1993, he had been an engine driver atSA Brewing Company for about seven years.Mr and Mrs Harrison raised two children, a son Michael and a daughter now married,Mrs Amanda Kenny.Mrs Harrison has also worked, principally as a sales assistant in such places as Myer, K-Mart and the ABC Book Shop.During 1993, it became evident that Mr Harrison could take a separation package from the brewery.They decided that provided the money was satisfactory, he would take the package and they would open a small business of their own.Negotiations about the package were successful andMr Harrison left the brewery in early November 1993.
From about the middle of 1993 the Harrisons had been thinking about various types of businesses.They looked at delicatessens, snack bars, pet food stores and fish and chip shops.As mentioned, they had always lived on the south side of the city, first in Reynella, then Port Noarlunga, then Plympton and finally after their short absence in England and Perth, settling in Christies Beach.They looked in the general south and south western suburbs. For one reason or another, they abandoned other types of shops and settled upon the idea of what they called, a British style grocery store.They described this as the sort of general grocery store that was common in England when they were children and they had been reminded of it by a British TV comedy series, "Open All Hours".They envisaged that such a shop would carry a wide range of produce including British style smallgoods, British marmalades and jams, British dry goods etc.They thought this style of shop would be popular, particularly with customers who had migrated from the United Kingdom.
Until about April 1993, the defendants operated Yorkies Pork Shop on Beach Road, Christies Beach, selling mainly pork based products but also other English style smallgoods and produce.Mrs Harrison had purchased items from that shop a few times and had had a few conversations with Mrs Harrington, especially about ceramics, in which they shared a common interest.However, they were no more than passing acquaintances.When the Harringtons were running the Christies Beach shop, there was a wholesale and a retail component, because they made some of their own produce, e.g., pork pies, which they sold in the shop. But there was also a growing wholesale trade.Mr and Mrs Harrington supplied other retail outlets, including David Jones in the city, with pork smallgoods, some of which they made and some they on-sold.They decided to concentrate on the expanding manufacturing and wholesale side of the business rather than the retail.They sold the retail part of the Christies Beach business to Mr and Mrs Mancini under a franchise agreement dated 1 July 1993.Under that agreement, the Mancinis traded as Yorkies Pork Shop at Christies Beach and were supplied with their pork products by the defendants who had set up their manufacturing/wholesale business at Kilburn.They obtained other produce from different suppliers.
When Mr Harrison left the brewery, the Harrisons did not intend to open the same type of shop as the Yorkies Pork Shop but it carried some of theproduce they wanted to sell and so, they got the Harrington's telephone number from Mr John Mancini.They wanted to knowwhether the Harringtons would supply them with Yorkies pork products.By then, the Harrisons had found a shop at Brighton which they thought might be suitable for a British grocery store. When they mentioned that to Mr Mancini, he pointed out that he had a franchise for the southern area and that they would not be able to open a shop that sold Yorkies products in his zone.As it happens, the Brighton shop would have probably been outside the 10 kilometre radius over which, subject to a couple of exceptions, Mr Mancini had exclusive rights in relation to Yorkies products, but nothing turns on that.
The Harringtons and the Harrisons got together at the defendants' farm at Myponga on Sunday, 7 November 1993.Prior to that, there was some telephone contact between them.Not surprisingly, the evidence about that is not completely clear.They were short conversations and were mainly trying to establish a time when they could meet.The probabilities are that there were three phone calls, with the first contact being made by Mrs Harrison ringing the factory at Kilburn and speaking to Mrs Harrington.The essence of that call was an inquiry about whether the shop at Brighton would be affected by the Mancini franchise and whether the Harringtons would supply the Harrisons if they opened a British grocery store.After that,there wasa telephone conversation between Mrs Harrison and Mr Harrington when there was a general indication by Mr Harrington that he would be willing to supply them in a shop but he expressed some reservations about the likely success of trying to sell English style products in Brighton.At that time, the Harringtons were very busyand it was arranged that they would get together on a weekend when they would have some time to discuss the matter further with the Harrisons.Whether the arrangement was made in the course of that conversation or a later one, is of no great significance but it was agreed that the Harrisons would go to the defendants' farm at Myponga on Sunday, 7 November 1993.So far,although there were some variations between the parties in their accounts of what occurred, it was no more than one would expect from people who were trying to recall an unremarkable lead-up to more important matters.However, from the meeting at Myponga on, there is virtually no common ground between the parties and the evidence of the plaintiffs and the defendants is in almost total and direct conflict.
Mr and Mrs Harrington were at home when the Harrisons arrived.At that time, Mr Harrington's parents were also living at the farm and had their own separate quarters.During the visit, Mrs Harrington was in and out of the lounge room from time to time, sometimes providing refreshments and sometimes attending to the needs of the senior Harringtons.The plaintiffs allege that during the Myponga meeting, the defendants made a series of representations, viz:that, although they could make a living at Brighton in a British grocery store, they would make much more money if they opened a Yorkies Pork Shop; that Gawler was a good place to open such a shop; that a Yorkies Pork Shop at Gawler would generate twice the turnover of the Yorkies Pork Shop at Christies Beach which had an annual turnover of $200,000; that the gross profit percentages to be earned would be 40-65% with a net profit of 35%;and finally, that within about three months of opening such a shop at Gawler, they would be spending $4,000 per week purchasing products from the Harringtons.It is the plaintiffs' case that these were misrepresentations.They say that these statements and in particular,the representation about the likely annual turnover, played a part (along with other conduct) in inducing them to start up the Gawler shop, that the statements and conduct were misleading or deceptive and that they are entitled to the relief claimed (Gould v Vaggelas (1983-1985) 157 CLR 215, esp. per Wilson J. at p236; National Australia Bank v Cunningham
(1990) ATPR 41-047).
In due course I shall return to more detail of the evidence about Myponga. Suffice it to say at this stage, that the defendants deny making any such representations.They agree that Mr Harrington suggested that the area north of Adelaide would be a good area to open a storereliant on the custom of people of British background but they deny that they suggested Gawler and in particular,say that it was the Salisbury/Elizabeth area they mentioned.
The Harrisons said in evidence that they went to the north of Adelaide a short time later.Mrs Harrison said they went twice to the general area, with only a couple of days separating each trip but Mr Harrison spoke only of one trip. Whether it was done in one or two trips, there is no doubt that in mid-November they visited Elizabeth, Salisbury, Gawler, part of the Barossa Valley and probably other places as well.They stayed overnight at Lyndoch on 18 November and at Tanunda on 19 November 1993.In the course of this trip they found a shop in Tod Street, Gawler.Tod Street runs at right angles to Gawler'smain shopping street, Murray Street.The shop was located in a complex called Victoria Court, a short distance up Tod Street from Murray Street.Victoria Court was then in the process of being restored and improved.It appears that an old single storey L-shaped buildingwas restored and converted into four shops that formed two sides of a courtyard fronting Tod Street.Above the shops, the developer had constructed four flats.There were iron gates at the street entrance to the courtyard.As the name of the development would suggest, the complex looked like a Victorian heritage restoration.By the time the Harrisons first saw it, the shop nearest Tod Street was operating as a diner and behind it, was a pram shop.A breezeway separated them from the two empty shops that completed the right angle.The shop taken by the plaintiffs was the one immediately behind the pram shop.The adjacent fourth shop appears to have been unoccupied at all material times.Next to the complex,there was a carpark with entry from Tod Street adjacent to the diner.It had pedestrian access to the shops through an iron gate at the end of the breezeway between the pram shop and the plaintiffs' shop.
I shall return to the evidence about this trip but the position can be summarised by saying that the plaintiffs were taken with the idea of a shop at Victoria Court and on their return to Adelaide, they visited the defendants at Kilburn, told them about the shop and asked if they would come to Gawler to look at it.The plaintiffs say that they were reliant upon the defendants for their advice and approval and in particular, their advice about whether that would be a suitable shop for a Yorkies franchise.
The defendants went to Gawler on or about26 November to look at the shop. There was some dispute about whether both Mr and Mrs Harrison were present when the defendants made that visitor whether it was only Mr Harrison and his son, Michael.I think the probabilities are that Mrs Harrison was not there.In due course Ishall deal more fully with the evidence about that visit but in substance, the plaintiffs allege that the defendants indicated to them by their conduct and by what they said, that Gawler as a location, that shop in particular and the rental proposed to be charged for the shop, were all appropriate for the running of a successful Yorkies Pork Shop.
It is common ground that the defendants put the plaintiffs in touch with their own bankers (the ANZ Bank) when they were seeking finance for the possible purchase of a franchise from the defendants.In the course of negotiations with the bank, the plaintiffs asked the defendants for some financial information so that they could show it to the bank.The plaintiffs say that they asked the defendants for something on which, with their accountant, they could basean estimate of the likely financial performance of the shop.The defendants say that the request was for some paperwork to show the bank at Gawler thatYorkies products did sell.The defendants supplied the plaintiffs with the financial statements for the Yorkies Pork Shop at Christies Beach for the ten month period ending 30 April 1993.Needless to say, they cover the joint wholesale and retail operation conducted before the sale toMr and Mrs Mancini.The plaintiffs allege that the defendants represented to them that these figures were for the retail part of the Christies Beach business and that they were intended to and did,induce them to believe that this was relevant to the turnover they could expect in a shop at Gawler.
The evidence does not show precisely when the plaintiffs decided finally to take a Yorkies franchise.However, on 1 December 1993, the plaintiffs signed a notice of intention to lease the shop and paid to the agent, Elders, a deposit of one month's rental ($666.67) which they would forfeit if they did not enter a lease agreement. They executed a 4 year lease on 4 January 1994. During December, a draft franchise agreement was prepared by the defendants' solicitor and sent to the plaintiffs for their consideration and comment.They suggested some alterations and after these had been made, a franchise agreement between the parties was executed on 7 January 1994.
During January, Mr and Mrs Harrington visited Gawler again.They brought with them a cheese slicer, which was something the Harrisons wanted.By that time, the shop was partly fitted out and in the course of the day, the Harringtons and the Harrisons sat in the courtyard of the shopping complex and had coffee together.It is not possible to say exactly when this visit occurred.Mr Harrison thought it was about 21 January but Mrs Harrison thought it was just after her birthday, 25 January.Mr Harrington thought it was in the early part of January.It is alleged that on that occasion,Mr Harrington made some remarks about taxation matters and I shall return to that in due course.
The plaintiffs initially intended to open their store on 31 January.They gave evidence about the reasons why they did not and how in their opinion, the defendants had let them down but in light of all the evidence, I am not persuaded that anything turns on that.On 31 January the plaintiffs spent some hours at the defendants' factory at Kilburn and were shown various things relevant to the business.
The shop opened on Thursday, 3 February.Mr Harrington was present assisting with pricing, layout, a grand opening barbecue, and generally, with the running of the shop.I need not go into detail about that.By all accounts, it was a very successful opening and everyone was happy with it.Unfortunately the apparent success was only short lived.As I have said, the shop failed within a few months.The precise reason for the failure is not known.One thing however, is clear and that is, there was not enough trade.Whether that was due to the design of the complex and the position of the shop within it, whether it was the shop's location within Gawler, whether it was because it was not on the main street, whether there were not enough customers in the catchment areawho were interested in that sort of product or whether there were other reasons,the evidence does not show. The plaintiffs traded as Yorkies Pork Shop until late May with the franchise being terminated on 24 May 1994.On 31 May the shop reopened under the name "British Gourmet Foods".The plaintiffs advertised the business under the new name but by the end of June, it was obvious that it would not work and the shop closed finally a short time later.
2. MATTERS OF GENERAL APPLICATION
2.1 AFTER 3 FEBRUARY 1994
The relationship between the plaintiffs and the defendants began to deteriorate within a comparatively short time after the shop opened and by late March 1994, the plaintiffs were considering legal action.I am left in no doubt by the plaintiffs' evidence that they feel verybitter towards the defendants.A considerable amount of evidence was given about things that happened from time to time between February and May, in relation to produce and the shop generally.This included accusations that Mr Harrington had given wrong advice on pricing, that the defendants had supplied faulty products, that there were delivery problems, etc.I do not propose to canvass all that evidence.There was a short-lived problem with the brine used in hams supplied by the defendants to all their retail outlets, which caused them to be dry but that was quickly remedied.Apart from that,the evidence in relation to those accusations is sparse and relates to a period when there was considerable animosity between the parties and the business was going down hill.It is impossible for me to make any sound findings on that evidence and it certainly fallsshort of enabling me to draw an inference that any such matters, if they happened, had anything material to do with the failure of the shop.
Similarly, the defendants alleged that the plaintiffs did not run the shop properly, especially in not regularly keeping it open during ordinary trading hours.Witnesses were called by both sides about these matters but I do not propose to canvass all that evidence either.I am sure that those witnesses did their best to describe the shop, the plaintiffs as proprietors, the performance of Michael Harrison and the hours the shop appeared to be open.I think there were times especially when Michael was looking after the shop by himself, that it was shut during trading hours but I am not satisfied that this was not for good reason or that it was shut for any inordinately long periods. More importantly, there is no evidence to substantiate an inference that it adversely affected trade.Nor is there evidence to support the suggestion that Mr and Mrs Harrison did not do their level best to make a go of the shop and to treat customers as well as their circumstances permitted.
Some time was occupied during the trial with evidence aboutwhether the plaintiffs were inserting gel into pork pies properly. In my view, the probabilities are that the plaintiffs were not inserting the gel properly and that therefore,the pies were turning sour.However, while that evidence is instructive in another regard to which I shall refer in due course, it does not lead to an inference that it contributed in a material way to the demise of the business.
The evidence is such that I cannot make findings one way or the other about the effect, if any, of these matters raised by both the plaintiffs and the defendants about the running of the shop and its eventual failure.
2.2 CREDIT
Both defendants were staunch in their denials that they said or did anything that could have been understood as an encouragement to the plaintiffs to open a shop at Gawler or as representing to the plaintiffs that a shop in that complex would do well.They also denied that they said anything about what sort of profitability the plaintiffs could expect.There were areas where the defendants' evidence was unsatisfactory. I thought there were times that each of them was evasive especially when they thought they were under threat. However, there is a real difficulty for the plaintiffs.It is their lack of credibility and that of some of the witnesses they called in support of their case.
Both Mr and Mrs Harrison were in the witness box for a considerable time and I had ample opportunity to observe and assess them.I found their evidence on important matters to be unconvincing.At times, both of them appeared to have carefully rehearsed what they were going to say and sometimes they would go ahead and say it,no matter whether it was relevant to the question.Mr Harrison was the main offender in that regard.In spite of a number of warnings and requests not to do so, he repeatedly avoided answering questions and by way of reply, would argue the case.I cannot believe that he did not realize what he was doing.Each of them was at times evasive and in my opinion, each told other than the truth to further their case against the defendants.They gave me the clear impression that in some important parts of their evidence, they had collaborated in an endeavour to bolster their evidence about what was alleged to have been said by the defendants and the effect this had on their decision to take up the franchise and open the shop at Gawler.I am unable to accept either of the plaintiffs as a witness of truth.I could not safely rely on their testimony to make adverse findings against the defendants. A number of matters in particular have led me to that conclusion and I shall now refer to them but it is not an exhaustive list.
3. MYPONGA
3.1 MR HARRISON'S EVIDENCE
Mr Harrison said that the main reason for going to Myponga was to ask the defendants whether they would supply their products to a British grocery store, because by then, they had decided to have such a store and it was only a question of where and when.They were interested also in his views about where they might consider putting a British grocery store.This was partly because of his saying that Brighton was not a suitable area and partly because they were not impressed with the Brighton shop, since major extensions were being undertaken in front of it and this would mean problems for about six months.They told Mr Harrington this and Mr Harrison's evidence of what occurred then is as follows. It is important to set it out in full:
"A. ........... Mr Harrington at that stage said, 'Well tell me something, do you want to make a lot of money or do you want to make a living?'I said, 'Well we'd be satisfied with a living, but anybody in their right mind would want to make a lot of money'.He said, 'Well you open that shop down at Brighton and you would get a living out of it, doing what you do in the British gourmet food shop'.He said, 'If you take my advice and go up to the north and open a shop there, and particularly if you consider opening a Yorkies Pork Shop franchise, you'll make a lot of money'.He then went on to explain that their original plan was to open in the Elizabeth area rather than down the south, and that there was a larger population of British in that area, and therefore we would have had a greater return.But they'd decided to take the Noarlunga district, which was the second greatest concentration of British population because they wanted to be much closer to the sea, and I think they had relatives living down there.So at that stage, I think - I asked him 'Well what have you got in mind, what sort of figures can you expect from that sort of a business, because we're looking at a British grocery shop, not a pork butchers as I told you before' because we'd had a similar discussion on the telephone when he'd said I could have taken the opportunity to buy a franchise. So we had some discussions about what would be involved if we bought a property in the north.He said, 'Look you're going to think I'm mad when I tell you this, but the best place to open a shop and particularly a Yorkies Pork Shop would be in Gawler'.He rationalised on that when he said, 'I've got hundreds and hundreds of my customers every week complaining to me that they have to travel down to Elizabeth and Craigmore and Salisbury to the shops that sell my stuff, and they're having to travel all the way down to Christies Beach, because the Christies Beach shop is the only one that has the full range of Yorkies products.They've all been asking me to open a shop in Gawler' because as they've sort of settled into the Elizabeth/Salisbury area and grown up, they've moved out of the city area into the country.Because they liked the area, they tended to settle towards the north, towards Gawler and the Barossa. So you've got a spreading of the British population out there."
Mr Harrison's evidence-in-chief about the meeting continued to the following effect.He then asked Mr Harrington what sort of products were sold in a Yorkies Pork Shop and what sort of percentages were involved, whereupon Mr Harrington wrote out a list and in the course of preparing it,said "Well, you'd be getting 40 to 65% gross and you can expect 35% net" and wrote those figures on the same piece of paper.Mr Harrison asked what plant and equipment was involved and Mr Harrington then wrote out a list of equipment on a second sheet of paper.Mr Harrington also gave him the name and telephone number of John Spencer Edd (an agent who specialized in butcher shops) at McLaren Vale and noted this on the first of the two sheets of paper.Mr Harrington told him that if he was thinking of a Yorkies Pork Shop, it would be better if he could find an existing butcher shop which could be converted and Edd was the man to speak to, because he may have some on his books in the northern region.
After doing the equipment list, Mr Harrington told them that there would be a great advantage in setting up a shop in Gawler because "we had literally a guaranteed goodwill in the Gawler area" for much less money than was involved in the franchise to Mancinis at Christies Beach and "we would virtually be getting a shop that in his estimation would be expected to earn double what the Christies Beach shop was earning because of the much higher population of people up there and the number of people who are already complaining that they want a shop in that area".When asked whether Mr Harrington indicated what that meant in figures, he said that Harrington replied that the Christies Beach shop was turning over $200,000 a year and"You're going to be getting double that.Not immediately of course but within 12 months you will be getting double that.Then he made the remark that within the first four months you could expect to be spending 4000 a week with me alone, with Mr Harrington on his products."
His evidence continued that Mr Harrington told him "a Yorkies Pork Shop would be the way to go" and urged him to have a look at Gawler andthe northern area.Mr Harrington said that by comparison with the Christies Beach shop which sold for $50,000,he could fit out a shop himself for no more than $15,000-$20,000 and "for that you would be establishing a business that would be much better than the one at Christies Beach and that guy had to pay $50,000 for it".Mr Harringtonexplained that the actual franchise fee would be the same as Christies Beach, namely$5,000.This amount was fixed by having regard only to the cost of delivery over a period of five years and the real benefit to the defendants was the selling of pork products to the franchisee. He claimed that Mr Harrington offered him the choice of either paying the fee of $5,000 up front or at the rate of $1,000 per year over the five year franchise period.There was to be an option to renew the franchise for a further two years.
Mr Harrison concluded that part of his evidence-in-chief by saying that when they left Myponga, they were still inclined to stay with their original idea of a British grocery store, particularly in the southern region but decided to "go and have a look in the Elizabeth/Salisbury/Gawler area and get back to him".
3.2 MRS HARRISON'S EVIDENCE
Mrs Harrison gave similar evidence and her account is as follows.Shortly after they arrived, her husband told Mr Harrington that they were not going to take the Brighton shop any further.In reply Harrington said "Do you want to make a lot of money, a living or a lot of money? ..... The shop at Brighton will get you a living but if you want to earn a lot of money then look to the north".Mr Harrington then said"he had found there was more English people up to the north and as far as he was concerned there was a lot more money to be made up to the north".When they told him that they were not really interested in the north because they had a married daughter who lived nearby, he repeated "The Brighton shop will make you a living but if you really want to earn some money then the north and you might think I am crazy but in particular Gawler". He then went on to say that "his customers had been asking him for a shop out at Gawler, how people were moving into Gawler from Elizabeth and Salisbury, around the surrounding areas, and then he said 'Do you want to consider a Yorkies franchise at Gawler?'"
There was then some discussion about the fact that Mr Harrison had only had little experience in butcher shops and how Mr Mancini had not had any prior butchering experience at all.Mr Harrington told themhe had charged Mr Mancini$50,000 plus a $5,000 franchise fee and "he told us that if we went up to the north - the Christies Beach shop was turning over 200,000, in his opinion it was busier up the north, we could double that."After that Mr Harrington said "something to Frank about how much turnover he would be doing in a short time but I don't recall the exact figures of that".Mrs Harrison told Mr Harrington that she had not seen Gawler for more than 20 years and that that side of the city had never appealed to her.She thought that Mr Harrison said much the same thing.She said that in response, Mr Harrington told them "he had advertised for a franchisee and he had not found anybody suitable but at one stage he was looking at a premises at Salisbury but it was too expensive, it was a butcher shop and the butcher had wanted to sell the whole of the business".
Her attention was directed to the list of products and equipment prepared by Mr Harrington at Myponga and she said that this was prepared in response to a request by Mr Harrison for some figures that would be relevant to opening a franchise.The document has the phrase"40%-65% then 35%" noted on the right hand side of the first page.She said that Mr Harrington had described40-65% as gross profit and when asked by Mr Harrison what the net profit would be, he wrote 35%.She said that the list of equipment was written out after Mr Harrison asked what equipment they would need for a Yorkies franchise and how much it would cost to set up a shop.It was her recollection that the franchise fee of $5,000 could be paid at $1,000 per year if they preferred to do it that way.
Before I examine the evidence of the meeting at Myponga further, I shall refer to the plaintiffs' evidence about their trip to the north of Adelaide. It will assist in the analysis.
4. THE TRIP NORTH
Mr Harrison said that they left Myponga thinking that it would be worth considering a franchise because it seemed a good proposition and "it was a very, very persuasive argument, so we said we were going to investigate it and there was no harm in investigating it, in checking it out."He said they visited Salisbury, Elizabeth, Craigmore, Golden Grove "and eventually Gawler". They also looked around the Barossa Valley.They discovered there were outlets for Yorkies products - i.e. delicatessens and butchers who sold Yorkies products in all those regions except Gawler.The nearest outlet to Gawler was a butcher shop at Munno Para.He said they asked people if they were aware of English pork pies and products of that type:"We seemed to meet a few English people - there seemed to be a reasonable number of English people in that district - in Gawler I am talking about now.It seemed to us that Mr Harrington's argument was sound.They were aware of the products, they wanted the products, and Gawler was the one place that didn't have them."He said they looked at a number of premises in the main street of Gawler but, guided by Elders at Gawler, they went to the premises in Tod Street which they found very attractive and so, they contacted Mr Harrington "and asked him if he would have a look at it and see if it met with his approval because he had said, you know, that it had to meet with some very strict criteria for him."
In cross examination, Mr Harrison said that they had only previously been to Gawler once, in 1969 but it was hot and dusty and they did not like it. However, after this visitthey revised their opinion and thought it "was a nice looking little town".When questioned about the details of theirtrip, he said their first port of call was Salisbury, particularly the main shopping area of John Street.When asked if they looked at any premises in John Street, he answered: "unfortunately, we didn't see any available".It was a hot day and after they had been there only for an hour at the most, his wife said that she did not like it.He agreed that he did not like Salisbury either.They then went to the Elizabeth area.They made no inquiries of any real estate agents there because they did not like Elizabeth either and especially the city centre, which he described as "a very characterless place, in our view, and we just didn't find it attractive".He said they looked inside the main shopping centre but as far as the perimeter shops were concerned they merely saw them; they did not look closely at them.He estimated they spent "a couple of hours or an hour" there.
Mrs Harrison's evidence was similar except, as I have mentioned already, she thought there were two trips.Whatever of that, she was certain they had gone to Salisbury and Elizabeth on the same day as their first visit to Gawler.She described their short visit to Salisbury as a walk through the general shopping area; she thought it looked "a bit tatty" and when asked whether they were considering a store in Salisbury she said "no, not especially Salisbury, we'd already been told Gawler".She described the shopping area as being "a bit scruffy and a bit run down".It was near the Parabanks Shopping Centre and "it appeared that Parabanks was a bit more of an obvious choice for people in that area to go to than John Street was".She thought they were in Salisbury for about an hour.
They then went to Elizabeth and she thought they spent about an hour to an hour and a half at Elizabeth looking at the shopping centre.She said that neither Elizabeth nor Salisbury had any premises that appealed to them as being suitable.She described the two centres as very different places; Salisbury as an avenue lined with shops and Elizabeth as "an enormous shopping centre, so really I didn't actually think there was much point in looking at Elizabeth, although we went to see it. It would be awfully expensive to go in there." When asked which of the three places she thought was a more likely location, she identified Gawler, saying it "was sort of very country-townish looking.It was sort of like an English country town with lots of little shops.It looked quite busy.It looked as though lots of tourists were going through to the Barossa Valley etc.It had some character".She formed that opinion while she was there.When asked whether she made any inquiries of people, she said "I think we sort of asked one or two people if they had heard of Yorkies".It was her recollection that they were there for about an 1 1/2 - 2 hours and then having formed the impression that "it looked like a thriving little town", they thought they should go back and see it again.She thought they did this a couple of days later when they made a longer trip.She said they stayed the first night at a hotel at Lyndoch and early the next day, they drove down into Gawler for another look and it was on this occasion they found the shop in Tod Street.She liked the look of it but said she was not sure if it was big enough or if it was in the right place.She said they told the Elders agent they liked the premises but "the franchisors would have to come down and approve of it". She said they rang the Harringtons and asked them to look at the shop.
In cross examination Mrs Harrison agreed that she would not want to live or work in Elizabeth or Salisbury, whereas she liked Gawler.
The Elders agent at Gawler, Mr Dare, was called by the defendants.He said in evidence that the shop taken by the plaintiffs was about 45 square metres, with a rental of $8,000 per year or just over $150 per week.That compared with shops of 40-50 square metres in Murray Street commanding $400-$500 per week or more, depending on where they were in Murray Street.He described the rent for the Tod Street premises as being among the cheapest available in Gawler at that time.Mr Dare said that Mr and Mrs Harrison came to his office on about 18 or 19 November inquiring about the shop and indicated they were interested in leasing it.He believed they had already seen it but he went with them and together they inspected the inside of the shop.After the inspection "their reaction at the time was virtually 'we'll take the shop'". They were not interested in any other premises and he remembered that they mentioned that the flat above the shop would be very useful, because their son would be moving to Gawler to help them in the shop and it would be available for him.He did not recall them say they would refer it to anyone else.It was his memory that at that time Mr Harrison was finalising some financial matters from his previous employment but that they wanted a shop and were ready to come to Gawler to set it up.He said that what stuck in his mind was their reference to a Yorkies Pork Shop:"I had never heard of the business before, and we did have some talk as to - they knew people that had or knew of a franchise that I think that they previously used to shop from, so were very keen and excited about the prospect".
There were other discussions with Mr Dare after that.They signed an intention to lease on 1 December and he said they came in at least twice before that.Given that Mr Dare had no particular reason at the time to notice the precise sequence of events, it may well be that in recalling conversations that took place more than two years ago,he cannot be certain about when they became committed to taking the shop but the one thing that does stand out in his memory, is that right from the start, the Harrisons were very keen on having that shop.
A few days later the Harrisons spoke to the Harringtons.Although Mrs Harrison thought it was a telephone call, the probabilities are that the plaintiffs visited the defendants at their Kilburn factory.It is consistent with the evidence of both the plaintiffs and the defendants, that Mr Harrington should say in his account of that day, that the plaintiffs were excited about the shop they had found in Gawler.They told him they had started at Salisbury, gone on to Elizabeth, through Gawler and into the Barossa Valley.I accept that the Harrisons told him that "they really liked the spot at Gawler. They thought it was rather like an English market town".They also described the shop as being "very, very English looking ....and that they would like us to go and look at it".The plaintiffs told the Harringtons that they were astonished to discover how many people had heard of Yorkies products.I shall refer again to the plaintiffs'request for the defendants to go to Gawler. However,suffice it to say at this stage, that at the least, it was in the contemplation of the parties and was a term of the proposed franchise agreement, that the defendants as franchisors had to agree to the business being established at the chosen address.
5. ANALYSIS OF MYPONGA AND THE TRIP NORTH
5.1 THE SELECTION OF GAWLER
The defendants' evidence is that Gawler was barely mentioned during the Myponga visit.They agreed that reference was made to the north, which they described as the area north of Parafield airport, and in particular, Salisbury and Elizabeth.Mr Harrington had read a newspaper article shortly beforethe Harrisons' visitwhich confirmed somethinghe thought he knew anyway, namely that there was a very large population with British roots in that area.Mrs Harrington saidthat after her husband told the plaintiffs that the northern area would be the best place to look for a shop, Mrs Harrison saidshe would not live in the Elizabeth or Salisbury area butshe "wouldn't mind Gawler". While I think itprobable that Mrs Harrison said something like that at some stage,it is unlikely that she said it during the conversation at Myponga.At that time she had not been to Gawler for many years and on her one prior visit, she did not like it, given that it was a particularly hot and dusty day.It is more likely that she said that or something like it,after she had been to Gawler in mid November.
The Harringtons had some knowledge of the northern area and its market for their products because they had some outlets in the area generally north of Adelaide.The exact number is not clear but when Mr Harrington compiled a list from memory, he noted about 15 stores that sold his productsinParafield, Parabanks, Elizabeth, Para Hills, Craigburn, Golden Grove, Ingle Farm, Munno Para,Tea Tree Gully and Holden Hill.These were in addition to outlets in the city, south of Adelaide and Whyalla.Mr Harrington said that his products sold well in the area north of Adelaide.One of the witnesses,Mr Rasheed, had a shop at Golden Grove.When he took over that shop in November 1993 he was buying about $50-$60 worth of produce weekly from the defendants but within about four months, this had risen to a minimum of $1,000 a week.
Mr Harrington was familiar with the market in those areas.However,he said that at that time, he had never considered selling in Gawler, he did not know anything about the makeup of the population there, he had never advertised in relation to setting up a franchise at Gawler and he had never even had any inquiries that would suggest he should consider an outlet for his products in Gawler.
I do not believe the plaintiffs when they say that the defendants, in particular Mr Harrington, suggestedthey should consider opening a shop in Gawler.I accept that Mr Harrington put a strong emphasis on the area north of Adelaide and in particular the Salisbury/Elizabeth area.If the plaintiffs wanted to deal in Yorkies products whether as an outlet or under franchise, there was no point in them being in the southern area where there was also a large distribution of English based population, because that was already tied up with the Mancini franchise and two other outlets.Although the plaintiffs deny it, I believe that the reason they inspected Salisbury and Elizabeth first, was because this was the area that Mr Harrington was recommending. Their consideration of that general area was perfunctory because they took a strong dislike to both Salisbury and Elizabeth.In my opinion, there was no way that they were prepared to seriously consider setting up shop in either of those locations.
On the contrary, they were very taken with Gawler.I have already referred to their evidence about that and both the town and the shop fitted nicely into the mental picture of what they envisaged - an attractive looking shop in an English market style town.In my opinion, if there was any specific mention of Gawler at Myponga, it would have been only in passing as part of the northern area but assuming no special significance.I believe that Mr Harrington recommended that they should consider opening a shop north of Adelaide, preferably in the Salisbury/Elizabeth area.
In my opinion the plaintiffs convinced themselves that Gawler was where they should go.Apart from the matters I have just mentioned, there are other indicators of that.Mr Harrison said they formed the opinion that there seemed to be a reasonable number of English people in Gawler and he went on to say that these people were aware of Yorkies products and they wanted them.Their evidence in support of that conclusion is that theyasked a couple of people who told them they had heard of Yorkies products.They were aware that there was no outlet in Gawler.The likelihood is that they were swayed in their thinking about Gawler because they took a liking to it and made a number of favourable assumptions.The probabilities are that they convinced themselves that Gawler would be as good for trade as Salisbury or Elizabeth and it would be a much more attractive place to work.
5.2 RECOMMENDING GAWLER
When Mr Harrison gave his evidence about the conversation at Myponga which I have set out earlier in detail, he looked and sounded very ill at ease.His claim that after he told Mr Harrington they would not take the Brighton shop, the latter responded with what can only be described as a "hard sell", was most unconvincing.I do not believe it.
I accept Mr Harrington's evidence that he had no knowledge of Gawler as a potential market.In my opinion,the plaintiffsfabricated this evidence and collaborated in an untruthful attempt to bolster their case.Mr Harrison's evidence has Mr Harrington saying that he might be thought "mad" in suggesting Gawler and Mrs Harrison uses the word "crazy".Either way, it is highly unlikely that if Mr Harrington was pushing the idea of Gawler,he would qualify his exuberance for it by emphasising how improbable an idea it was, when speaking to the two people he wanted to convince.It is odd that neither plaintiff asked him why they should think he was mad or crazy to suggest Gawler.It is more consistent with my assessment of the plaintiffs, that they have falsely introduced this element of incredulity into their evidence in an attempt to support their allegation that he recommended Gawler, which, with the benefit of hindsight, was an unlikely choice when compared withSalisbury and Elizabeth.
It is suggested that the defendants had a motive in recommending Gawler, because they had no outlet there and that in effect, they were using the plaintiffs to achieve that end.It was submitted that there were numerous outlets for Yorkies products in the Elizabeth and Salisbury area already and that this supported the proposition that the defendants would not have recommended those areas.I do not accept the submission.Mr Harrington said that if the plaintiffs had been interested in those areas, he would have willingly sacrificed some of those outlets and structured a franchise agreement that included a reasonable exclusion zone.Because it did not arise for consideration, a lot more work would have been needed to establish a workable proposition but I believe he was telling the truth about that.Apart from his evidence having the ring of truth, it would make business sense for him to intensify his market penetration in the way a franchise would provide, rather than just relying on some outlets.From his point of view, they were good risk areas.
I do not believe the plaintiffs in their assertion that Mr Harrington told them at Myponga that there were many people in the Gawler area asking him to open a shop.Moreover, I do not believe Mrs Harrison was telling the truth when she said that Mr Harrington told them at Myponga that "the people from Salisbury and Elizabeth were moving out to Gawler".I thought that was an attempt to make some form of credible connection between the established market in Elizabeth and Salisbury on the one hand and Gawler on the other.
5.3 PRODUCT AND EQUIPMENT LIST
I refer to the two page list prepared by Mr Harrington at Myponga, showing products, prices and percentages on the first page and equipment on the second. The evidence about this from both the plaintiffs and the defendants was unsatisfactory.The plaintiffs put it forward as evidence to show that they were told that in a franchise, they could expect a gross profit of between 40% and 65% with a net profit of 35%.Mr Harrington said that it was prepared simply to show what sort of goods could be supplied if the Harrisons opened a British grocery store (not a franchise) with their current wholesale and retail prices and that the average mark up, depending on the item, was between 40% and 65% but that in running a small business of that type, one should aim never to go below 35%.
This is where the evidence became very confusing.At one stage Mr Harrington was talking about mark up and at another, he was talking about gross profit. If he was as ambiguous in his use of those terms when he was talking to Mr and Mrs Harrison,they may well have thought he was talking about gross profit in relation to some of the figures.However, I do not accept that he told them they could expect a net profit of 35%.Even someone with a rudimentary business knowledge would know that before any forecast could be made of the net profit of a business, one needs to know a lot more than the product prices and especially,to know the overheads of the business.At best, the list showed the sort of gross percentages involved if products were sold at the listed retail prices, being those used by the Christies Beach shop.
I do not accept that the list related solely to the operation of a franchise. I think the probabilities are, as was partially conceded by Mr Harrison at one stage, that the products listed were those that the defendants could supply, whether it was to a British grocery store or to a franchise.I accept Mr Harrington's evidence that if it related solely to a franchise, he would have listed some further products which were exclusive to a franchisee and were not sold through other outlets.
5.4 TURNOVER PREDICTIONS
I do not believe that Mr Harrington made any prediction at Myponga about the annual turnover that could be expected in a franchise at Gawler, let alone saying that it would be double an annual figure of $200,000, said to be the Christies Beach figure.Nor do I believe that Mr Harrington said that within about three months, the plaintiffs would be spending $4,000 a week with the defendants on Yorkies products alone.Quite apart from my findings about the credibility of the plaintiffs, it is inherently unlikely that Mr Harrington would predict figures like that.He struck me as a reasonably astute businessman and he had no idea what trade would be like in Gawler.He had no outlets there and he had not made any inquiries or conducted any research about Gawler as a likely market or catchment area for customers.
When the defendants ran the Christies Beach business it was a combined wholesale and retail operation and it so happens, that the financial statements which Mr Harrington gave the plaintiffs in December, show that the sales for the 10 month period ending 30 April 1993 at that shop were$199,653.There is no evidence to show that as at November 1993, Mr Harrington had any idea what the gross turnover of the Mancinis' Christies Beach retail business was. Further, as Mr Harrington readily conceded in cross examination, he would have had no basis at all for saying anything about an expected turnover of double that figure.He had no basis even to assert the figure of $200,000.In my opinion, this is another example of the opportunistic use by the plaintiffs of information that came into their hands later, in this instance to fabricate a representation by the defendants at Myponga.Moreover, in my opinion, it is no coincidence that $200,000 a year is about $4,000 per week.When Mr Harrison first spoke about this in evidence-in-chief, he said that the representation about spending $4,000 per week was made at Myponga.In cross-examination, he said he recalled Mr Harrington saying it on a number of occasions.However, it is instructive to have regard to one of his answers in cross-examination shortly after saying that:
"As I understand Mr Harrington's conversations with me, it was to the effect that 'You will be spending $4000 per week with me within three months', and that was in the enthusiasm particularly of the first day when the shop was fairly crowded, and he was excited and we were all excited - I had to make an emergency run back to the factory for extra stock, and he said, you know, 'You're going to be spending $4000 a week with me within three months. Doing wonderful'.
HIS HONOUR
Q. That's when he said that.
A. That is one of the occasions that he said it, yes.
XXN
Q. I put it to you firstly that's not true, he didn't say anything like that at that time.
A. It is true."
(Emphasis mine)
Whatever Mr Harrison said elsewhere in his evidence about the number of times it was said, it was clearly his major emphasis that this was said on the opening day in the excitement of the success of that day.The whole tone of this passage of evidence is that this was the first time it was said.It was my impression that his guard was down when he said this and when he realized what he had said, he tried to recover his position. I do not believe that anything like this was said at Myponga.As to whether something like that might have been said in the exuberance of the opening day's trade, I do not know.ButI certainly cannot accept that there was ever anything of that nature by way of a representation that played any part in the decision by the plaintiffs to take the franchise.
5.5 ADVERTISING FOR A GAWLER FRANCHISE
Mr Harrison said nothing in the course of his evidence-in-chief about Mr Harrington telling him he had advertised for a franchisee at Gawler in the past.In cross-examination, he said he knew that the Harringtons did not have an outlet at Gawler and this was why Mr Harrington was suggesting Gawler as the next place to open in the north.The following exchange took place -
"Q. Did you ask him 'Well, if you think Gawler is so good, why don't you already have an outlet there', or anything to that effect.
A. No, because of the course of the conversation - can I answer this?
Q. Yes.
A. Because of the course of the conversation, he had told me that he had hundreds of customers asking, and they were asking him to open a franchise, and he said he had been advertising for franchises (sic), but he couldn't find anybody suitable.
.................................
Q. It is a complete invention that Mr Harrington said something about advertising of a Yorkies franchise in Gawler.
A. He said it, but if you're saying he didn't do it, I'm inclined to agree with you because I've searched the newspapers and I can't find any of his adverts."
Given that it was the plaintiffs' case that Mr Harrington was trying to convince them of the benefit of taking a franchise at Gawler, evidence that he had previously tried to get a franchise going at Gawler was very significant for them.It would be a good indication of Mr Harrington's state of mind about the value of Gawler for a franchise.One would have expected it as part of Mr Harrison's evidence-in-chief.As it was, it came in cross-examination by way of explanation as to why he did not question Mr Harrington's exuberance about Gawler as a place for a franchise.Mr Harrison's demeanour when he gave that evidence, indicated to me that it was a lame and late excuse.As for the bulk of his final answer, I formed the impression he said that to cover himself after telling an untruth.
Earlier, I mentioned Mrs Harrison'sreference in evidence-in-chief to Mr Harrington's saying something along those lines.Mrs Harrison gave evidence after her husband.Mr Harrington denied that he had ever contemplated a franchise at Gawler, let alone advertised for one and other than these assertions, no evidence was produced to suggest that he had done so.I prefer the evidence of Mr Harrington on this matter.
5.6 DESCRIPTION OF GAWLER
In the course of cross-examination, Mr Harrison volunteered for the first time, when explaining why they had changed their minds about Gawler after visiting it, that "what Mr Harrington had said about it being a very personal, English style market town proved to us to be true".Asked when Mr Harrington had said that, Mr Harrison replied that it was at Myponga on 7 November 1993. Again, it is surprising that this was not mentioned in evidence-in-chief but perhaps more to the point, it is uncanny that Mr Harrington should have described the town in almost identical words to those used later by the Harrisons themselves.In my opinion, Mr Harrison is putting the words into Mr Harrington's mouth.
5.7 SALISBURY BUTCHER SHOP
In her evidence in chief, Mrs Harrison said that at Myponga, Mr Harrington told them "at one stage he was looking at a premises at Salisbury but it was too expensive, it was a butcher shop and the butcher had wanted to sell the whole of the business."
This matter came up again in cross examination.Mr Possingham questioned her about it and asked whether Mr Harrington had indicated that Salisbury was a good area.In answer she said:
"Can I answer that this way?He was telling us he'd already looked at a butchers shop in Salisbury and it hadn't worked out, so I assumed from that he was really saying well, obviously there's not that much available in Salisbury at that time when he looked."
Bearing in mind the evidence she had given earlier, she was then pressed as to whether what she had actually understood from what had been said, was that there was a problem with the shop, not with what was available in Salisbury and her answer was "yes, I suppose I did, yes".This is another example of Mrs Harrison's unreliability as a witness.
6. THE DEFENDANTS AT GAWLER IN NOVEMBER
Mr and Mrs Harrington went to Gawler on about 26 November, to look at the shop and there they met Mr Harrison and his son Michael.
The thrust of the plaintiffs' evidence is that they were relying on the defendants to advise them whether or not they should take the shop - "to see if it was suitable for a franchise".On the other hand, the defendants say that they were aware of their right of refusal but it was the plaintiffs' business and the plaintiffs' choice and that although Mr Harrington was prepared to give advice, it was really a matter of whether the defendants were prepared to agree to the Harrisons having that shop for the business.
When asked whether she had discussed the litigation with her parents,Mrs Kennywas most evasive but finally, sheagreed that she had helped them go through the figures but she had not seen a report from Mr Nicholas Matsis, accountant, which was prepared for the trial.When pressed on this,she began to pretendshe did not know who Mr Matsis was, although he is and has been for some time,her parents' accountant.Her evidence reached high farce when she was pressed about the truth of that and she said "I know people by first names". She then agreed that she knew their accountant as Nick andhad met him outside the courtroom during the trial.In my opinion this was a totally unbelievable effort by her to distance herself from any suggestion that she had had anything to do with advising her parents on financialmattersin ways that might cut across their assertion that they relied blindly on representations by Mr Harrington.In the same vein, when asked some questions about a turnover figure of $400,000 and a net profit of 35%, she engaged in a pretence of being unable to calculate even an approximate estimate of the value of 35% of $400,000.I cannot place any relianceon Mrs Kenny's evidence in any contentious matter.I do not accept her as a witness of truth.
7.4 MR KENNY
Mr Ian Kenny who has been married to Mrs Amanda Kenny for about 8 years, also gave evidence.In November 1993 he was studying for a degree of Bachelor of Business at the University of South Australia and was about to complete his second year.The course contained an accounting component.Mr Kenny was also evasive about how much accounting knowledge he had, particularly in relation to understanding financial statements.His evidence of what the plaintiffs said they had been told by the defendants at Myponga, was very similar to that of his wife.Mr Kenny had someinvolvement in runningthe businessand as a member of the family, hehas been affected by its failure and the litigation. I think that Mr Kenny's evidence has been coloured by that failure and the bitterness of the litigation.I accept that the plaintiffs told himthat the defendants made the representations he repeated in court but the real question is, when did they tell him that.I am not satisfied that he first heard them when he says he did, namely shortly after the Harrisons had been to Myponga.I do not believe that Mr Kenny is an impartial and reliable witness.I refer to two examples of matters that concern me.
(1) For all the things that were alleged against Mr Harrington, it was not suggested by anyone else that he did not take a pride inrunninghis business as a manufacturer and supplier of food products.In evidence-in-chief, Mr Kenny was asked whether, shortly prior to the opening of the shop, Mr Harrington had instructed Mrs Harrison how to gel the pork pies.It had already been explained that these are served cold and that it is the practice to inject a surround of gelatine inside the pastry to seal the meat from outside contamination.This is not done at the factory but at the shop.In describing Mr Harrington showing his mother-in-law how to inject the gel,he said "You have to put a hole in the top of the pies.Mr Harrington had a bucket with tools in it.He pulled out a screwdriver which had been previously used with paint, or something like that - it was not a clean screwdriver - and poked a hole on the top of the pie with a screwdriver."When this was put to him, Mr Harrington denied vehemently that he would do such a thing.I accept Mr Harrington's denial.The impression I formed, was that it was a gratuitous attempt by Mr Kenny to blacken Mr Harrington's character.
(2) When giving his evidence-in-chief he like his wife, said that the plaintiffs told them that Mr Harrington said at Myponga that if they wanted "to make lots of money, Gawler was the place to be."They, he and Mrs Kenny, asked the plaintiffs why Gawler was so attractive:
"A. They (the plaintiffs) said that Harrington had done the demographics and the necessary market research and that there were a lot of English people in the Gawler region and that they were the buyers of pork pies and pork sausages.
Q. Anything else that they attributed to Terry Harrington or Mrs Harrington that you can recall.
A. No, not specifically, just that, as I said before, the place to go was Gawler".
The clear import of that evidence isthat the Harringtons had told the plaintiffs that there were a lot of English people in the Gawler region with no mention of any other place in that area.Later in cross-examination he was asked the following question -
"Q. You said you recall her (Mrs Harrison) then saying that she'd learnt from Mr Harrington that a lot of English people live in the Gawler region.
A. Yes, the northern area and Gawler.
Q. What's the first part.
A. The northern region and Gawler".
He was asked why he had added the words "northern region" and he said "Because it's the northern region.Gawler is north."When asked why he hadn't mentioned anything about "the northern region" when he had given his evidence-in-chief, he said "The main emphasis was based upon Gawler".
This demonstrates the hesitation I have in accepting Mr Kenny as accurately recounting what he was told.The best that can be said is that in his evidence-in-chief, he edited the conversation to put the emphasis where he believed it was intended, as distinct from repeating what had been said to him. There are other alternatives, one of which is that he deliberately omitted it in evidence-in-chief.I do not know what the correct explanation is.Suffice it to say thatfor reasons of this type,I cannotrely on his evidence about contentious matters affecting the defendants.
8. SUNDRY MATTERS
There are some other matters to which I should refer briefly.
8.1 THE FINANCIAL STATEMENTS
The plaintiffs claim that to assess whether the Gawler business would be profitable, they relied on the financial statements of the Christies Beach business for the ten month period ended April 1993.I do not believe them. They arefigures from a shop at a different location and for a business that was mixed wholesale and retail.A cash flow budget was prepared by their then accountant, Mr Foxford, whom they consulted at Gawler.Although they would not admit it, it is my opinion after seeing the budget, that Mr Foxford gave them advice about the sort of profits and turnover they might expect, even if only on a conservative basis.The figures in that budget do not appear to be based on those in the Christies Beach financial statements.
Given that the plaintiffs' evidence was so unreliable, including their recollection about their discussion with Mr Foxford, which was quite vague, the only way of knowing what part, if any, the figures in those financial statements played, would have been to hear evidence from Mr Foxford.He was not called.It was submitted that since Foxford as their accountant, was a witness which the plaintiffs could reasonably be expected to have called as part of their case,I should draw an inference from that unexplained failure to call him, that his evidence would not have been helpful to the plaintiffs' case.While it is open to a court to draw such an inference in appropriate circumstances, the authorities make it clear that it may do so but is not obliged to do so (O'Donnell v Reichard [1975] VR 916 at p 929; Brandi v Mingot
(1976) 12 ALR 551 at p 559).I do not need to be concerned about whether to draw such an inference.The fact of the matter is, thaton the evidence, I am left not knowingwhat use was made of those financial statements and in particular, whether the plaintiffs relied on them in deciding to enter the venture.
8.2. SOUR PIES
After the shop had been running for a while, there was a problem with pork pies turning sour.It turned out that there was something wrong with the way the plaintiffs were using the gel and once that was rectified,the problem was solved.I need not go into all the details of the evidence for present purposes;I can summarise it.The problem was that the plaintiffs were boiling the water before they dissolved the gelatine powder, with the result that the gel was lumpy and unsatisfactory.Mrs Harrington saidthis was due to a mistake on the part of the Harrisons, who must have misunderstood what they were to do, namely only use warm water not boiling water, otherwise that problem would arise.Not only would the plaintiffs not accept that they had made a mistake,they claimedthat they had been misled by Mrs Harrington who had originally told them to boil the water and then, after theydrew the problem to her attention,said that she had only just discovered she had been making thatmistake and that in future, boiling water should not be used. Apart from the fact that Mrs Harrington denied that allegation, it is incredible that someone who had been successfully running a wholesale and retail business involving gel in pork pies for a considerable time, should have been making such a fundamental error and only found out about it around the time the plaintiffs ran into the problem. Although it was made much of by the plaintiffs, this incident is not very important but it is instructive as an indicator of the length to which the Harrisons were prepared to go, to vilify the Harringtons.
8.3 AVOIDING TAX
A number of times duringtheir evidence, Mr and Mrs Harrison said thatMr Harringtonsuggestedthey should do some cash transactions "under the counter" to avoid paying tax.Mr Harrington denied that he said anything like that and the allegation was challenged vigorously.In the course of her evidence, Mrs Harrison was speaking of the time that Mr Harrington came to the Gawler premises in late January and brought the cheese slicer.She saidthey were sitting outside the diner having coffee and shehad a clear recollection that Mrs Harrington "told him off at one stage".When asked why, she said:
"He was telling us that if we'd take a delivery a week off him that was under the table, then we would make a lot more money and his wife remarked to him, 'Don't talk out the side of your mouth like that, it makes you look shifty. I've told you before.'"
Even if it were true, this incident would be of little relevance overall but I do not believe her.I found her description to be most unconvincing and I thought it was a rather poor attempt to gratuitously blacken Mr Harrington's character.
9. CLAIM
The plaintiffs' primary action is for damages by reason of the defendants' engaging in conduct that was misleading or deceptive or was likely to mislead or deceive, in breach of s56 of the Fair Trading Act.It is conceded, in my opinion quite correctly, that if the claim under the Fair Trading Act is not made out, then the action would be unlikely to succeed in any of the other causes pleaded.
For the reasons I have set out, the plaintiffs have not established the representations or the conduct relied upon and therefore they cannot succeed under any of the causes of action.In the circumstances, it is unnecessary to deal with the arguments about the effect of s56 of the Fair Trading Act concerning representations with respect to the future. The claim must fail.
10. COUNTERCLAIM
I can deal with this briefly.
The defendants have made out their claim for payment of the legal fees due for the preparation of the franchise agreement.Quite properly, it was conceded by Mr Costello for the plaintiffs, that if the plaintiffs failed in their claim against the defendants, they would be liable for the payment of those fees pursuant to the terms of the franchise agreement.The quantum of those fees has been agreed at $592.
The defendants also claim $975 for produce delivered to the plaintiffs' shop but not paid for.The quantum is agreed but the plaintiffs deny that they are liable for payment, because, as Mr Harrison put it, "We considered that most of them (the goods) were very old stock and we considered that they were dumping their old stock on us further to make life difficult for us". There is no independent evidence to support that allegation and given the evidence generally and the opinion I have formed about the respective parties, I have no reason to doubt that the stock was of merchantable quality.The defendants shouldreceive payment for it.
In addition, the defendants claim damages, unspecified but up to an amount of $12,000, for loss caused to their business by the plaintiffs' complaining to other customers of the defendants about their produce, such that there was a drop in the profitability in the defendants' business.The evidence in support of this claim was sparse and unconvincing.
Ms Taylor, a shop assistant who until recently, was employed by David Jones in its city food hall,was called as a witness.Her evidence can be summarised by saying that in (she thinks) 1994,a manshe identified in court as being Mr Harrison, bought a piece of Ascot pie that was wrongly labelled and shortly afterwards management ordered the pie to be tested.She said that towards the end of 1995, she saw the same man again at her counter.He said that Yorkies products were "no good" and suggested that David Jones should get that sort of product from a different supplier.
Her evidence can be dealt with briefly.She only saw the person concerned on two occasions for short periods of time.Mr Harrison wore a distinctive moustache in court.Ms Taylor said that on the occasions she saw him in the store, he had no moustache.I exercise the usual caution in accepting a courtroom identification in those circumstances.In any event, even if it was Mr Harrisonon one or both occasions, there is no evidencethat what he said had any effect on purchases of Yorkies products by David Jones.
Some information was put forward by the defendants, comparing trading figures in the latter half of the 1994 calendar year with a similar period in 1993.I do not agree that this demonstrates there was any fall-off in trade and more particularly, there is nothing to show any connection whatsoever between those trading figures and any thing said or done by the plaintiffs.In my opinion there is no evidence on which I could make any finding in relation to this claim for damages.I therefore dismiss that part of the defendants' counterclaim.
I therefore find the defendants' counterclaim proved in the sum of $1,567. The amount of $592 has been owed for approximately two years and the sum of $975 has been owed for about 20 months.A reasonable rate of interest during those periods would be 6%.Rounded off, I allow $170 interest.
The plaintiffs' claim against the defendants is dismissed and on the counter claim, there will be judgment for the defendants for $1,737.
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