Hype Investments Pty Ltd and Sebastiano v Funk Coffee and Food Pty Ltd - [2019] SADC 98

District Court of South Australia
(Civil)
HYPE INVESTMENTS PTY LTD AND SEBASTIANO v FUNK COFFEE AND FOOD PTY LTD AND ORS
[2019] SADC 98
Judgment of His Honour Judge Tilmouth
19 July 2019
TRADE AND COMMERCE - TRADE AND COMMERCE GENERALLY - STATUTES RELATING TO MISLEADING OR DECEPTIVE CONDUCT IN TRADE
The plaintiffs entered into Franchise Agreements with the defendants to operate one of its cafés in Flinders Street Adelaide. They claim damages for misleading and deceptive conduct comprising misrepresentations as to weekly turnover, profitability, catering and wages levels.
Held:
1. It is proven that representations were made to the effect that turnover was in the vicinity of $15,000 per week and in the levels of wages and catering.
2. There were additional misrepresentations by failing to correct these statements.
3. Breaches of s 82 of the Trade Practices Act are proven.
4. The action is to be relisted for further hearing as to consequential orders and costs.
Trade Practices Act 1974 (Cth) s 51A, s 51AD s 52, s 75B(1), s 82, a 82(2); Misrepresentation Act 1972 (SA) s 7; Trade Practices (Industry Codes - Franchising) Regulations 1998 (Cth) r 6(1), r 7, r 9, r 19; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; Slinger v Southern White Pty Ltd (2005) 92 SASR 303; Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; Google Inc v Australian Consumer Commission (2013) 249 CLR 435; Australian Competition and Consumer Commission v Telstra Corporation Ltd (2004) 208 ALR 459; Parkdale Custom Built Furniture Pty Ltd v Puxu Ltd (1982) 149 CLR 191; Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; Sheen v Fields Pty Ltd (1984) 58 ALJR 93; Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82; Gwam Investments Pty Ltd v Outback Health Screenings Pty Ltd [2010] SASC 37; Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; March v Stramere (E & MH) Pty Ltd (1991) 171 CLR 506; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; Henville v Walker (2001) 206 CLR 459; Sidhu v Van Dyke (2014) 251 CLR 505; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546; Blatch v Archer (1774) 1 Cowp 63; Nguyen v Taylor (1992) 27 NSWLR 48; Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211; Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367; James v ANZ Banking Group (1986) 64 ALR 347; Marks v GIO Australia Holdings (1998) 196 CLR 494; Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; Potts v Miller (1940) 64 CLR 282; Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281; Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200; Smith New Court Security Services Ltd v Citibank [1997] AC 254; Myers v Transpacific Pastoral Co Pty Ltd (1986) ATPR 40-673, referred to.
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82; Gould v Vaggelas (1985) 157 CLR 215; Paric v John Holland (Constructions) Pty Ltd (1985) 59 ALJR 844, applied.
Manhattan (Asia) Ltd v Dymocks Franchise Systems (China) Ltd (2014) 225 FCR 508, not followed.
Southern White Pty Ltd v Slinger & Slinger [2004] SADC 43; Slinger and Anon v Southern White Pty Ltd (2005) 92 SASR 303; Australian Competition and Consumer Commission (ACCC) v South East Melbourne Cleaning Pty Ltd (in liq) (formerly Known as Coverall Cleaning Concepts South East Melbourne Pty Ltd) [2015] ATPR 42-503, discussed.
Copping v ANZ McCaughan Ltd & Ors (No 2) (1995) 181 LSJS 157; JM & PM Holdings Pty Ltd v Snap-On Tools [2014] NSWCA 347; Spar Licensing Pty Ltd v MIS Qld Pty Ltd (2014) 314 ALR 35, considered.

HYPE INVESTMENTS PTY LTD AND SEBASTIANO v FUNK COFFEE AND FOOD PTY LTD AND ORS
[2019] SADC 98
Table of Contents
Overview of the issues
The parties
Contractual documents
The pleadings
Overview of the evidence for the plaintiffs
Overview of the Case for the Defendants
Misleading and deceptive conduct
Material non-disclosure
Representations as to the future
Causation and Reliance
Analysis
The $15,000 weekly turnover and expectation/representations
Net profit of $2000 and wages representations
Representations as to catering
The claims to relief
Breach of Franchising Code of Conduct
Exclusion and disclaimer clauses
Limitation defence
Assessment of Damages
Valuation of the business
Conclusion and orders
Overview of the issues

The Funk Group of Companies is Franchisor of a number of cafés selling coffee and food at breakfast and lunch times in and around Adelaide. The Funk café situated at 80 Flinders Street Adelaide, forms the core subject matter of these proceedings. At issue are monies claimed to be owing under the Franchise and the circumstances under which the arrangement was entered into in the first place.
This café was franchised to the plaintiffs in late June 2009 for a period of five years. It was renewed in August 2014 and finally terminated in September 2018. It is claimed this arrangement was entered into on the basis of untrue or unrealistic turnover figures. The plaintiffs bring these proceedings for damages as a consequence. Such allegations are denied by the defendants. They claim by cross-action and counter-claim several heads of damage, including unpaid rent, royalties, outgoings under a licence to occupy, as well as marketing fees and the like due under the Franchise Agreement.
The parties
Funk Coffee & Food Pty Ltd (Funk Coffee and Food) is the owner of the café and catering business at 80 Flinders Street (Funk Flinders Street). It trades under the name ‘Funk Coffee’. Several other cafés trade in close proximity to each other in the CBD, such as Frome Road (at the corner of Flinders Street) Waymouth, Pirie, Grenfell, King William and Angas Streets, as well as Victoria Square (at the corner of Angas Street). The first plaintiff Hype Investments Pty Ltd (Hype Investments) was licensed on 1 July 2009 to occupy the Flinders Street premises and operate the business by the third defendant Funk Leasing Pty Ltd (Funk Leasing).
Mr Sebastiano is the sole Director of the first plaintiff, Hype Investments. Hype Investments is the trustee for the B Sebastiano Investments Trust. He became franchisee of the business under a Franchise Agreement with Funk Franchise Pty Ltd (Funk Franchise). Hype Investments purchased the business under a Business Sale Agreement. Mr Sebastiano guaranteed Hype Investments under the Sale Agreement at the same time and later its obligations under the Licence Agreement. The fourth and fifth defendants Mr Damaskos and his wife Mrs Damaskos are the Directors of Funk Coffee & Food, Funk Franchising and Funk Leasing, holding equal interests each.
Initial discussions and then negotiations between Mr Sebastiano and Mr Damaskos with respect to Funk Flinders Street commenced in either late 2008 or early 2009. Soon after Mr Sebastiano entered into a confidentiality agreement in March 2009, he received a Form 2, in the form prescribed under the Retail and Commercial Leases Act 1995 (SA).[1] Counsel for the plaintiff expressly disavowed any cause of action based on this legislation.[2] Mr Sebastiano was later provided with turnover figures for Funk Flinders Street over the four weeks of February 2009. These documents are pivotal to the case for the plaintiffs which is that they misleadingly over-stated turnover for the business.
[1] Exhibit P1 Tab 12.
[2] T25.1-.7.
Contractual documents
Legal relations between the parties are comprised of the following agreements:
·A Franchise Agreement dated 1 July 2009 between Funk Franchise and Hype Investments, for an initial term of five years with a right of renewal for a further five years.[3]
·A Sale of Business Agreement entered into between Hype Investments and Funk Coffee & Food on 23 June 2009.[4]
·A Licence Agreement between Funk Leasing and Hype Investments for the purposes of occupancy of the premises dated 1 July 2009, to expire on 16 August 2016.[5] This was in effect a sub or underlease granted with the consent of the landlord at that time, Insurance Australia Pty Ltd.[6]
[3]    Exhibit P2 Tab 110.
[4]    Exhibit P2 Tab 94.
[5]    Exhibit P2 Tab 112.
[6]    Exhibits P2 Tab 63 and Tab 112, T550.33-551.1.
Settlement took place on 1 July 2009, at which Hype Investments paid a total of $412,489.89, when additional costs such as stamp duty and conveyancing fees were added.[7] This was substantially made up of a purchase price for the business, plus stock and goodwill, a franchise fee and franchise training fees. In addition, the Franchise Agreement provided for the payment of Royalty fees of 5 per cent of gross weekly revenue and a 2 per cent marketing contribution, levied on the same basis.
[7] Exhibit P5 Tab 10.
Mr Sebastiano commenced operating the business on Wednesday 1 July 2009. It is clear he spent the previous two days in the café during a handover period, as well as a week or two immediately beforehand during a training period. Although there are differences in the evidence as to the length of training, it could not have been any more than two weeks since Mr Sebastiano resigned from his employment in mid to late June 2009.[8] Any suggestion that it was any longer than that simply fails for that reason, and is in any case inconsistent with the pleaded defence that it was two weeks prior.[9]
[8] T46.35-47.3, T257.35-258.2.
[9] Defence para 11.3, T615.31-616.34 Mr Damaskos, T788.20-789.1 Mrs Damaskos.
The pleadings
The gist of the case for the plaintiffs is that representations said to be misleading or deceptive were made that wages stood at specified levels, that turnover was approximately $15,000 per week (and hence turnover of that order could be expected to continue), the nett profit of Funk Flinders Street was around $2,000 per week, and that catering business levels were not achieved as expected.[10] The latter complaint is bound up with another Funk café opened in mid-April 2009 in Victoria Square, allegedly taking with it the catering customer SA Water, from the Funk Flinders Street business.The plaintiffs maintain the defendants failed to disclose the proposal that SA Water catering was to be serviced from Victoria Square Funk.
[10] Fourth statement of claim paragraph 23.
The causes of action invoked are primarily enlivened under ss 51A and 52 of the Trade Practices Act 1974 (Cth). It is common ground that the Australian Consumer Law (Cth) has no application to these proceedings, as it did not come into operation until 1 January 2011, well after the subject agreements were struck. Relief is sought under s 87 thereof, and/or s 7 of the Misrepresentation Act 1972 (SA). Neither counsel barely referred to the latter enactment throughout the trial. There is a subsidiary claim for breaches of the Trade Practices (Industry Codes – Franchising Regulations) 1998 (Cth) in as much as there is an alleged failure to supply the required earnings information relating to the business.
The prayers for relief include declarations that the franchise and franchise renewal agreements were void and unenforceable, and consequently the sale, licence agreements and the franchise guarantees fail, as well. Expert evidence was tendered on both sides valuing the business as of 1 July 2009. It will become necessary to analyse this evidence at some length later in these reasons. In their reply, the plaintiffs maintain they were not aware the Victoria Square Funk business was proposed to cater to SA Water, or that it was a previous client of the Flinders Street Funk business.
The fourth and fifth defendants Mr and Mrs Damaskos, are joined in these proceedings as Directors of Funk Coffee & Food, Funk Franchise and Funk Leasing, and because they, or at least Mr Damaskos, made the representations on their Corporate behalf. They deny any misrepresentations of the kind alleged. They allege Mr Sebastiano was only too well aware of the trading position of the Flinders Street café as he frequently visited the store during the earlier part of 2009. They assert he often asked for or was given daily or weekly trading figures from time to time. They further contend that although the Victoria Square Funk business admittedly commenced operations on 22 April 2009, Mr Sebastiano was told in February 2009 this was to be the case and that it was to provide catering services to SA Water. SA Water occupies the same building on Victoria Square as the Victoria Square Funk.
There are defence pleas with respect to causation and reliance, due to disclaimers acknowledged pre-contract by Mr Sebastiano and on account of him taking independent legal, franchise and financial advice. It is further contended that as the first Franchise Agreement was renewed on 4 August 2014 on similar terms, the original agreements were thereby affirmed.
Overview of the evidence for the plaintiffs
Mr Sebastiano told the court he was in reasonably well-paid work with a wholesale wine distributor at relevant times beforehand, earning in the order of $60,000 to $65,000.[11] Although he ‘was looking at a couple of cafés’[12] at the time, he otherwise held steady and uninterrupted employment over the years after completing year 12 in approximately 1993.[13] He was an experienced café operator and proprietor. He knew Mr Damaskos from prior dealings when he was employed by ‘Cadbury Schweppes’ some 10 years earlier. They reconnected through a mutual friend who happened to work at the Funk Franchise in the Optus building on the corner of South Terrace and King William Street. It was here that discussions began about the Funk franchise businesses. There was some disagreement in the evidence as to when and where these discussions commenced and later took place, but these are inconsequential as both sides agree there were several meetings or discussions beforehand, some informal, others exploratory in nature.
[11] T125.10-.28, and see his Income Tax Returns Exhibit P4 Tab 238.
[12] T48.17.
[13] T44.8-48.22.
Initially there was informal talk of a generalised nature commencing around Christmas 2008 or early New Year 2009. In these Mr Sebastiano ascertained there were four Funk cafes in the Adelaide CBD at that time. Mr Damaskos first considered franchising earlier in 2007.[14] Initially Mr Sebastiano was not interested in a franchised model. Having long experience in hospitality, he was in no need of the ‘back-up support’ a Franchisor might provide.[15] As time went on however, his interest grew to the point that discussions turned to the potential franchise over one of two Funk cafés, in Flinders or Waymouth Streets.[16]
[14] T466.7-10.
[15] T50.8-.33.
[16] T56.25-57.12.
The interest of Mr Sebastiano became aroused if it meant less hours of work and no weekend or night work; a prospect representing a significant change for him as he had two young children he hoped to spend more time with.[17] Nevertheless, he indicated that he purchased principally because ‘(F)rom all the reports and everything Arthur told me that I would be earning $2,000 a week … as long as it stuck to $15,000 or more’.[18] He indicated several times that he was only at all interested if the ‘numbers were to stack up’ and the proposal ticked all the boxes.[19] Mr Damaskos agreed that Mr Sebastiano made that plain to him his interest was only ‘if the numbers stacked up and the other boxes were ticked’.[20] In the event, Flinders Street became the first Funk café the defendants franchised.
[17] T51.5-.11, T52.14-.29.
[18] T87.29-88.4.
[19] T52.26-29, 60.35-.37.
[20] T544.1-.21.
At some point in time no later than 16 February 2009, Mr Sebastiano was given incomplete 13-week trading figures for the Flinders and Waymouth Street Funk businesses over the September 2008 quarter in spreadsheet form.[21] Those figures were:
[21] Exhibit P1 Tab 1.
Flinders Street  Waymouth Street
Turnover Net of GST            $152, 548.32  $156, 453.30
GP Turnover  $108.404.55  $112,636.61
64.85%  65.64%
GP Turnover Net of GST       $ 95,505.11  $ 98,972.54
62.61%  63.26%
Note:  67.5% as of 30/11/08            67% as at 30/11/08
Wages  $ 42,396.65  $ 40,927.25 (23.85%)
Net Profit  $ 77,569.06  $ 45,138.68
46.40%  26.30%
Net GST  $24,673.24  $33,447.85
16.17%  21.38%
Owners/Managers Wage        $ 13,041  $ 13,041
These entries were assembled by Mr Damaskos from ‘sales figures, all the costs’, but in any case from source documents whatever they were that are no longer available.[22] These figures show an average profit figure of $2,000 per week for that quarter. As an aside, it should be noted that the respective handwritten notes on the two spreadsheets projecting turnover ‘as of 30/11/08’ reproduced above, were added according to the evidence of Mr Damaskos ‘to provide additional information for Mr Sebastiano on what the gross profit was for the subsequent two months … .’[23]
[22] T742.14-.36.
[23] T684.21-.33.
A subsequent cashflow plan prepared by Mr Fanto the accountant engaged by Mr Sebastiano, was premised on the four weekly sales reports for February 2009.[24] Likewise a Business Plan prepared by Mr Sebastiano himself was predicated on a ‘current turnover of $15,000 (avg) per week’.[25] Similarly the post-purchase accountant engaged by Mr Sebastiano, Mr Varapodio was referred to a Form 2 figure of $12,119, and his instructions as ‘verbal $14-15k p/wk’.[26]
[24] Exhibit P1 Tab 43, T421.16-.20, T428.37-429.9, T441.2-.8.
[25] Exhibit P1 Tab 42.
[26] Exhibit P4 Tab 237
A subsequent cashflow plan prepared by Mr Fanto the accountant engaged by Mr Sebastiano, was premised on the four weekly sales reports for February 2009.[27] The baseline figures for turnover and the Manager’s wages taken from the September quarter figures are reproduced in the notes of Mr Fanto as of 16 February 2009.[28] Likewise a Business Plan prepared by Mr Sebastiano himself was predicated on a ‘current turnover of $15,000 (avg) per week’.[29] Similarly the post-purchase accountant engaged by Mr Sebastiano, Mr Varapodio was referred to a Form 2 figure of $12,119, and his instructions as ‘verbal $14-15k p/wk’.[30]
[27] Exhibit P1 Tab 43, T421.16-.20, T428.37-429.9, T441.2-.8.
[28] Exhibit P1 Tab 5.
[29] Exhibit P1 Tab 42.
[30] Exhibit P4 Tab 237
At another point in time a ‘Franchise Financial Information for Prospective Franchisees’ was given to Mr Sebastiano by Mrs Damaskos, it appears in early January 2009.[31] This document contained the following Table.[32]
[31] Exhibit P1 Tabs 34 and 35.
[32] Exhibit P1 Tab 35 p 371. The stores 1-4 are references to Frome Road, Waymouth Street, Optus Building (King William Street) and Flinders Street respectively.
Operational Revenues
As of 2008, there were four Funk cafés in the Adelaide CBD, at Frome Road that opened in February 2005, next to Corporate Funk’s Head Office on Waymouth Street that opened in July 2006, 11 King William Street/Optus Building that opened in February 2007 and Flinders Street that opened in August 2007.
At subsequent meetings discussions continued along the lines of the Flinders Street store being a better option as it was in the CGU Corporate Building and next door to the Santos Building. At all events after visiting both sites, Mr Sebastiano indicated a preference for Flinders Street.[33] This location potentially provided more office based customers as there were other corporate entities close by as well. According to his evidence, Mr Sebastiano was assured multiple times that Flinders Street Funk was turning over $15,000 per week and had done so since the beginning of the 2009 calendar year. This level of takings was attractive and served only to stimulate his interest, despite the initial reluctance to embark upon a franchise model.[34]
[33] T57.35-.37.
[34] T58.31-.38, T60.7-.31, T61.16-.25, T63.8-.18, T64.2-.13, T65.34-66.3, T83.38-84.11. T88.1-.5, T158.22-.27.

A series of ‘Department Sales Reports’ generated electronically by the sales system in the store itself, were given to Mr Sebastiano progressively on four occasions over four weeks in February 2009. They demonstrate the following:[35]
·For the period 1 February and 6 February 2009 turnover was $14,836.50 and catering was worth $2,444.30, or 16.47 per cent of turnover;
·For the week 8 February to 13 February 2009 turnover was $13,922.80 with catering at $1,108.50, or 7.96 per cent of turnover;
·For the week 15 February and 21 February 2009 turnover was $15,648.66 with catering at $2,721.80, or 17.39 per cent of turnover;
·For the week 22 February and 28 February 2009 turnover was $15,367.12 with catering at $1,406.80 or 9.15 per cent of turnover.
[35] Exhibit P1 Tab 8 pp 63-66.
Based on these figures, Mr Sebastiano claims reassurance from Mr Damaskos that catering was an important component of the business, that weekly sales regularly stood at around $15,000 and based on those returns, he could expect $2,000 ‘in his pocket’.[36] Mr Damaskos himself conceded when cross-examined about these figures that:[37]
… it is probable that if the store was run the way we ran it on that sort of turnover, it would leave $2,000.
[36] T60.13-.24, T61.16-.21, T64.2-.13, T65.34-66.3, T84.3-9,88.1-.5, 326.35-.37, 345.22-.25, 358.21-.26.
[37] T570.38-571.8.
Against this background, an asking price of up to $440,000 was initially put forward by Mr Damaskos.[38] There were some differences about the precise figure but here again they are of no significance. Subsequently Mr Sebastiano submitted a Franchise Application on 24 February 2009.[39] In this he expressed a desire to ‘get back into hospitality and be involved with taking the Funk brand to the next level of business’ and ‘after having a three year break from hospitality I feel ready and refreshed to get back into business’.[40] Although he took financial and legal advice in the meantime, he continued discussions with Mr Damaskos in the weeks leading up to settlement on 30 June 2009. During the entire pre-contractual period Mr Sebastiano was adamant that it was never mentioned to him that Flinders Street Funk catered for SA Water, or that the weekly turnover was not maintaining the February 2009 levels.[41]
[38] T63.13-.15, T109.9-.10.
[39] Exhibit P1 Tab 6.
[40] Exhibit P1 Tab 6 p 33.
[41] T69.6-.25, T252.13-253.32.
The Form 2 disclosure statement given to him dated 16 March 2009, specifically disclosed average weekly sales of:[42]
·$10,294 in the period between 5 August 2007 and 30 June 2008
·$12,120 in the period between 1 July 2008 to 27 February 2009.[43]
These figures embraced periods of 45 and 33 weeks respectively.
[42] Exhibit P1 Tab 12
[43] Exhibit P1 Tab 12.
Although at first alarmed by these figures, Mr Sebastiano claims he was told by Mr Damaskos not to ‘worry too much about the Form 2’, but rather to act on the figures provided to him for February 2009.[44] This was denied by Mr Damaskos.[45] Mr Sebastiano further claimed that Mr Damaskos’ explanation for why these figures in the Form 2 differed from the February 2009 weekly reports, was because catering had increased by then.[46]
[44] T71.33-.72.5, T328.12-.17.
[45] T572.20-.24.
[46] T72.6-.11.
Not long after Mr Sebastiano began operating the business he found weekly turnover was ‘nowhere near where Arthur had told me’.[47] Indeed shortfalls began in the very first week of occupancy when catering also noticeably fell, to the point that turnover was just $7,933.10 and catering $236.60.[48] This state of affairs is borne out by the Departmental Sales Reports generated from the internal sales system itself.[49] By around September 2009, he became so concerned that he consulted a hard copy catering diary kept near the till. He took copies of certain pages as he intended to confront Mr Damaskos about what he considered to be underperforming sales levels. Of particular interest to him were the catering entries for SA Water before he took over, coupled with the fact that these did not continue afterwards and of which he claims to have been unaware.[50]
[47] T92.6-8, T101.1-.5.
[48] Exhibit P5 Tab 19.
[49] Exhibit P3 Tab 155, Exhibit P4 Tabs 201 and 232, and Exhibit P5 Tab 19.
[50] Exhibit P2 Tab 127.
The diary entries he did copy at this time reveal catering was supplied to SA Water on 10, 12, 17, 18, 19, 20, 24, 26 and 30 March, on 2, 3, 6, 7, 8, 14, 16, 17, 20, 21, 22, 24, 27 and 28 April 2009, many of them more than once in a single day. References to the number of sundries, rolls, pastries, cakes, cocktails and danish pastries and the like suggest these orders were not insubstantial. Mr Damaskos said that a platter of catering food could bring in $200.[51]
[51] T556.23-.24.
It is not open to infer that this was the entire extent of SA Water related catering entries because he only copied this limited selection. The evidence goes only so far as to indicate Mr Sebastiano’s attention was drawn to the issue of catering because he ‘worked out approximately 300 a day was no longer coming to my store in catering’ and that ‘SA Water had appeared quite consecutively in my catering diary and after May it totally disappeared’.[52] Unfortunately the diary was misplaced and can no longer be found.[53] There is no evidence one way or the other as to whether there were earlier bookings for SA Water catering in the Flinders Street diary. No evidence was adduced by either side from SA Water on this topic.
[52] T103.2-.19.
[53] T93.26-.30.
Mr Sebastiano’s concern over turnover and expenses was such that he called for and prepared an agenda for a meeting with Mr and Mrs Damaskos in early September 2009.[54] Their response was that external circumstances were ‘out of their control … the Global Financial Crisis … the weather … school holidays …’.[55] Mr Sebastiano produced the photocopied pages of the catering diary during a second meeting in late September, for which he again prepared an agenda.[56] His request to return the business to them for the same price as was paid for it was refused, however some Royalty relief was given.[57] It was suggested by both Mr and Mrs Damaskos that this was in the order of close to $50,000, or up to one-and-a half years of rebates, although no attempt was made to quantify this by formal proof.[58]
[54] T99.25-.35, Exhibit P2 Tab 124.
[55] T101.9-.16.
[56] Exhibit P2 Tab 126.
[57] T109.3-.22.
[58] T615.5-.9, T793.28-.35.
Overview of the Case for the Defendants
Both Mr and Mrs Damaskos gave evidence that none of the (mis)representations were made, particularly so far as Mr Damaskos was concerned as he conducted the principal negotiations. It is not in dispute that as Directors of the Funk Group of Companies they are persons capable of involvement in a contravention of the Trade Practices Act in the ways described in s 75B(1) thereof. They frequently suggested that because of his increasing involvement with Flinders Street Funk as time went on, Mr Sebastiano was aware of the turnover and because he was provided copies of daily Departmental Sales Reports from time to time, either upon request by Mr Damaskos himself, or on occasion by the Cameron sisters who worked there.[59]
[59] T552.37-553.18, T681.30-682.4, T739.28-740.10, T625.18-.28.
Liability is denied on this basis that whatever was said was true in fact when it was made. Mr Damaskos specifically denied stating that average turnover was $15,000 per week or of assuring Mr Sebastiano that was the case.[60]
[60] T578.32-.38, 579.15-.18.
Misleading and deceptive conduct
Section 52 of the Trade Practices Act contained a prohibition against engaging ‘in conduct that is misleading or deceptive or is likely to mislead or deceive’. Whether conduct is misleading or deceptive (or is likely to mislead or deceive), is a question of fact to be resolved by reference to the entire course of dealing and in the context of the surrounding circumstances, by an objective analysis of the conduct in question: Butcher v Lachlan Elder Realty Pty Ltd,[61] Campbell v Backoffice Investments Pty Ltd,[62] Slinger v Southern White Pty Ltd.[63] It is first necessary to determine whether the alleged representations were conveyed: Campomar Sociedad, Limitada v Nike International Ltd,[64] Google Inc v Australian Competition and Consumer Commission,[65] and if so then whether they are as a question of fact, false, misleading or deceptive (or likely to mislead or deceive): Australian Competition and Consumer Commission v Telstra Corporation Ltd.[66]
[61] (2004) 218 CLR 592, [109].
[62] (2009) 238 CLR 304, [102].
[63] (2005) 92 SASR 303, [63].
[64] (2000) 202 CLR 45, [105].
[65] (2013) 249 CLR 435, [89].
[66] (2004) 208 ALR 459, [49].
Conduct becomes misleading or deceptive (or likely to be so), when it has a tendency to cause a party to act in error, or under misconception: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd,[67] Butcher v Lachlan Elder Realty Pty Ltd,[68] Australian Competition and Consumer Commission v TPG Internet Pty Ltd.[69] This aspect of the inquiry directs attention to the likely reaction to the conduct by ordinary or reasonable members of the class to whom the conduct is directed: Campomar Sociedad Ltd v Nike International Ltd.[70] Proof of an intention to mislead or deceive is unnecessary, as the impugned conduct is objectively assessed: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd.[71] Conduct is likely to mislead or deceive, if at the time the conduct occurred, there is a ‘real or not remote chance or possibility, regardless of whether it is less or more than a fifty per cent chance’: Sheen v Fields Pty Ltd,[72] Global Sportsman Pty Ltd v Mirror Newspapers Ltd.[73]
[67] (1982) 149 CLR 191, 198.
[68] (2004) 218 CLR 592, [111].
[69] (2013) 250 CLR 640, [39].
[70] (2000) 202 CLR 45, [102]-[103].
[71] (1982) 149 CLR 191, 216.
[72] (1984) 58 ALJR 93, 95.
[73] (1984) 2 FCR 82, 87.
Material non-disclosure
It was authoritatively established in Miller & Associates Insurance Broking Pty Ltd v BMW Finance Limited that:[74]
… mere silence, with regard to a material fact, which there is no legal obligation to divulge, will not avoid a contract, although it operates as an injury to the party from whom it is concealed.
The joint judgment of French CJ and Kiefel J proceeds to note the ‘characterisation of conduct will be undertaken by reference to its circumstances and context’, in which ‘[S]ilence may be a circumstance to be considered’, as well as the ‘knowledge of the person to whom the conduct is directed’: Miller & Associates Insurance Broking Pty v BMW Australia Finance Limited.[75] Where the conduct complained of is constituted by or includes a failure to disclose something, the question is whether in light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive: Demagogue Pty Ltd v Ramensky,[76] Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd.[77]
[74] (2010) 241 CLR 357, [16].
[75] (2010) 241 CLR 357, [20].
[76] Ibid [41].
[77] (2010) 241 CLR 357, [14].
In Demagogue Pty Ltd v Ramensky, Gummow J considered mere silence could ‘support the inference that the fact does not exist’; where the ‘circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed’.[78] Black CJ expressed his agreement with Gummow J, before adding:[79]
Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of “mere silence” or a duty of disclosure can divert attention from the primary question. Although “mere silence” is a convenient way of describing some fact situations, there is in truth no such thing as “mere silence” because the significance of silence falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.
[78] (1992) 39 FCR 31, [41].
[79] Ibid [32].
The joint judgment of French CJ and Kiefel J in Miller & Associates v BMW Australia,[80] considered the reasonable expectation criteria referred to by Gummow J in Demagogue, as an aid to characterising non-disclosure as misleading or deceptive in an objective way with a ‘practical approach’ to the application of the prohibition in s 52.[81] The reasonable expectation criteria were applied by the Full Court in Gwam Investments Pty Ltd v Outback Health Screenings Pty Ltd.[82]
[80] Ibid [19]-[21].
[81] (2010) 241 CLR 357, [20].
[82] [2010] SASC 37, [168].
Of course, a party is not obliged to volunteer information of assistance to the other party to avoid the consequences of the careless disregard of that other party’s own interests: Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd.[83]
[83] (2010) 241 CLR 357, [22].
Representations as to the future
A representation as to a future matter, that is to say a statement made about what will happen in the future, is generally characterised as a non-actionable expression of an opinion: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd,[84] and Australian Competition and Consumer Commission v Dukemaster Pty Ltd.[85] As stated in Global Sportsman Pty Ltd v Mirror Newspapers Ltd:[86]
The non-fulfilment of a promise when the time for performance arrives does not of itself establish that the promisor did not intend to perform it when it was made or that the promisor's intention lacked any, or any adequate, foundation. Similarly, that a prediction proves inaccurate does not of itself establish that the maker of the prediction did not believe that it would eventuate or that the belief lacked any, or any adequate, foundation. Likewise, the incorrectness of an opinion (assuming that can be established) does not of itself establish that the opinion was not held by the person who expressed it or that it lacked any, or any adequate, foundation.
[84] (1984) 2 FCR 82, 88.
[85] [2009] FCA 682, [10].
[86] (1984) 2 FCR 82, 88.
However s 51A(1) of the Trade Practices Act provided that where a representation was made ‘with respect to any future matter (including the doing of, or the refusing to do, any act)’, the ‘representation shall be taken to be misleading’, where there are no ‘reasonable grounds for making the representation’.
In considering this question it is necessary to ‘guard against hindsight illusion’: City of Botany Bay Council v Jazabas Pty Ltd.[87] Expressing this principle in another way there must be some fact or circumstance existing at the time of the representation on which reliance is reasonably placed and which supports the representation: Sykes v Reserve Bank of Australia.[88]
[87] [2002] ANZ ConvR 300, [83].
[88] (1998) 88 FCR 511, 513-514.
Causation and Reliance
In order to succeed a sufficient causal link must be proven between the impugned conduct and error on the part of the person exposed to it: Australian Competition and Consumer Commission v TPG Internet Pty Ltd,[89] Wardley Australia Ltd v Western Australia.[90] Section 82 of the Trade Practices Act provides the recovery of loss suffered by conduct of another person. Causation is a question of fact to be determined by reference to common sense and experience: March v Stramere (E & MH) Pty Ltd,[91] and Wardley Australia Ltd v Western Australia.[92] The conduct in question needs not be the sole or even a necessary cause of such loss or damages, providing it materially contributed to it: I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd,[93] Gould v Vaggelas,[94] Henville v Walker,[95] and Sidhu v Van Dyke.[96] Still further, it must be proven that the party alleging false and misleading conduct caused that party to rely on it in entering into a bargain: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd.[97]
[89] (2013) 250 CLR 640, [39].
[90] (1992) 175 CLR 514, 525.
[91] (1991) 171 CLR 506, 515.
[92] (1992) 175 CLR 514, 525.
[93] (2002) 210 CLR 109, 130 [62].
[94] (1985) 157 CLR 215, 236, 238.
[95] (2001) 206 CLR 459, [14], [106].
[96] (2014) 251 CLR 505 at [52]-[55] and [61]
[97] (1988) 39 FCR 546, 558-559.
As explained by Wilson J in Gould v Vaggelas:[98]
If a material misrepresentation is made which is calculated to induce the representor to enter into a contract and that person enters into that contract there arises a fair inference of fact that he was induced to do so by the representation…in the general experience of mankind the facts speak for themselves…it is entirely accurate to speak of an onus resting on the defendant…to show that the inference…of inducement which would not ordinarily be drawn …should not be drawn. But it is no more than an evidentiary onus.
[98] (1985) 157 CLR 215, 236.
Analysis
With the above background events in mind, the question becomes whether it is established on balance that Mr Damaskos allowed and in fact encouraged Mr Sebastiano to labour under the misapprehension that returns of the order of those achieved in February 2009, continued undiminished to the end of June that year. The actual situation was clearly such that turnover in fact fell for the greater part of that period. The monthly returns expressed in dollar terms actually achieved for the six months immediately preceding formal agreement, tabulate as follows:[99]
[99] This table was provided to the court by the plaintiffs as part of its written closing submissions, without objection by defence counsel.
It can be seen from these figures which in the event with one inconsequential exception, reproduce the actual Sales Reports,[100] that average weekly earnings were at best under $13,000. Levels of $15,000 or more were only achieved in the last two weeks of February, and for the weeks of 30 March and 11 May. Average takings for the whole of February were $14,909.90, that is all but $15,000, relied on by the plaintiffs as constituting the core misrepresentation as to turnover. As is apparent, the actual trading figures painted a materially different picture. The average monthly sales for the 2008/2009 financial year are illustrated by the graph marked Appendix ‘A’ to these reasons.[101]
[100] Exhibit P2 Tab 105, except for those in red which come from a spreadsheet provided to Mr McPharlin, Exhibit P2, Tab 108, p 867. Otherwise all the figures within the table correspond with Department Sales Reports collated in Exhibit D 17 except for the week beginning 23/2/09 for which the Departmental Sales Report shows sales of $15,367.12, Exhibit P2 Tab 105.
[101] This was not an Exhibit in the trial. It was handed to the court as an aid during the Plaintiff’s opening with the consent of defence counsel
The $15,000 weekly turnover and expectation/representations
It follows from the above narrative that Mr Sebastiano was clearly not provided with turnover figures on a comprehensive or systematic basis, as one might ordinarily have expected to be the case.
There is no doubt that when taken alone, the four weekly Department Sales Reports for February 2009 hold out that average weekly turnover was in the order of $15,000. The only other formal disclosure was by way of the Form 2, which indicated average weekly sales were just over $12,000. It is at first sight surprising that Mr Sebastiano did not insist on seeing more to check that the ‘numbers stacked up’. But then again, he maintains Mr Damaskos reassured him a number of times that the February 2009 figures were correct. In this state of the opposing versions of the critical events, it is best to resolve the conflict principally by resorting to objective or proven facts and the inferences fairly arising therefrom.

The figure in the Business Plan prepared by Mr Sebastiano in April 2009, referencing ‘the current turnover of $15,000 (avg)’ is wholly consistent with a representation of turnover at $15,000 per week, as the figure of $15,000 formed the basis for it.[102] It was equally the assumption of the accountant Mr Fanto, based on what Mr Sebastiano told him in early April 2009.[103]
[102] Exhibit P1 Tab 42, p 386.
[103] Exhibit P1 Tab 43.
For the six calendar months immediately preceding the handover on 1 July 2009, average weekly turnover was $12,809.95 including GST, or $11,708.46 exclusive of GST. The average weekly turnover for January 2009 was $11,982.33 including GST, whereas from between March to 30 June 2009 it was $12,527.20. The only other occasion when returns approached $15,000 per week was achieved in the second half of the calendar year 2008, was in December.
To this point of time in the analysis of the evidence, it is clear that all that was provided to Mr Sebastiano by way of substantial written materials, were the figures for the September 2008 quarter and the four weeks of February 2009. The latter was the only sustained period during which anything like $15,000 was realised by way of weekly turnover.
It became clear as the defence case unfolded, that the claim Mr Sebastiano was given copies of turnover reports on numerous occasions as and when requested, or in countless meetings with Mr Damaskos, was instead rather limited and episodic. More than likely this occurred primarily in the period of a week or two during training before handover on 1 July 2009. The suggestion by Mrs Damaskos that her husband printed a Departmental Sales Report for a whole week prior to Christmas 2008, was not put to Mr Sebastiano by defence counsel. Further, Mr Damaskos did not give evidence to that effect. Rather he spoke of producing sales figures to Mr Sebastiano only after the confidentiality agreement was signed, so the most likely course of events is that none were produced beforehand.[104] Even if Mr Sebastiano was given a report for a single week in late 2008, it would be of minor relevance given that the critical consideration was the levels of trading post February 2009.
[104] T681.30-682.4, T739.28-740.3, T476.29-.35.
The evidence of Melissa Cameron who worked in the Flinders Street store for a few months prior to handover, was very much conjecture. Her evidence was substantially based on seeing the two men in the back office but was ‘not able to say what they were doing’.[105] On another occasion she referred to a point in time Departmental Sales Report, which tends to support the conclusion that such occasions were for training and operational purposes, rather than for a wider assessment of long term turnover.[106] In fact she told the court this would be done ‘just to see where you are … get an idea of trends … to know where you are at on that day.’[107]
[105] T628.21-.22.
[106] T628.26-630.5.
[107] T629.26-.36.
Her sister Kelly Cameron, the Manager of Funk Flinders Street immediately before it was sold, spoke of flying home from overseas on 13 June 2009 and of returning to work four or five days later.[108] She said it was the ‘habit’ of Mr Damaskos to have her ‘print out for his own purposes’ copies of sales reports, but that she did not do so for Mr Sebastiano as ‘the most he would do … is to ask how the day has been’.[109]
[108] T633.21-.30.
[109] T641.26-642.28.
The position is as Mrs Damaskos herself frankly but accurately volunteered, ‘providing one or two weeks of POS sales isn’t enough for anyone to make a decision on it’.[110] Furthermore, the Departmental Sales Reports that were given to Mr Sebastiano were in any event largely for limited point of sale or training purposes. This aspect of the defendants’ case that Mr Sebastiano was provided with a significant number of sales reports spanning larger periods of time, must therefore be rejected.
[110] T740.4-.10.
The history of ‘disclosure’ of the Departmental Sales Reports, is consistent with this conclusion.[111] It is clear these reports were always in the possession of the defendants at least electronically, since all but a complete set was eventually tendered as Exhibit D17. Those reports were generated electronically on a daily basis by an in-store point of sale system referred to as POS.[112] This system kept daily records of sales and was used as the source for calculating the 5 per cent franchise fee and the 2 per cent monthly fees provided for in the arrangement.[113] The POS system in each of the Funk stores was accessible online from Funk’s Head Office.[114]
[111] ‘Disclosure’ here is referred to in the legal sense of the obligation to disclose (or to ‘discover’ as it was previously referred to) all documents ‘directly relevant to any issue raised in the pleadings’ as required by r 136(1) of the District Court (Civil) Rules 2006 (SA).
[112] T240.26-241.4, shorthand for Point of Sale.
[113] T760.14-761.8.
[114] T211.13-.27.
The defendants’ first list of documents failed to disclose any such sales reports. In fact their solicitors specifically advised ‘we have been instructed by our client that no such records were prepared for the financial years ending 30 June 2009 and 30 June 2010’.[115] The explanation given by Mr Damaskos when confronted with this was to defer responsibility to his wife, as she ‘was responsible for all the documentation’ and ‘most of the admin stuff’.[116] Mrs Damaskos baldly fobbed off the topic by vainly suggesting there was a misunderstanding with their solicitors.[117] Those solicitors were not called to support this claim.
[115] Exhibit P11 Tab 7.
[116] T503.11 - 509.15.
[117] T706.29-707.15
In a subsequent letter of 7 April 2009, their solicitors responded differently, in that they advised the Departmental Financial Reports ‘were previously discarded by our clients and are consequently no longer in their possession’.[118] Mr Damaskos was utterly unable to explain why this fractured course of disclosure was the case. He again deferred responsibility for this to his wife, as probably the reason for ‘… filing and discarding’[119] and that it ‘got mixed in with … the documentation … we threw out.’[120] The evidence of Mrs Damaskos was no better. She asserted merely that ‘a few documents inadvertently were discarded’.[121] She professed to misunderstanding what her solicitors wanted, or not understanding ‘which documentation was requested’ and that the documents were discarded in July 2016.[122]
[118] Exhibit P11 Tab 9.
[119] T511.29-512.16.
[120] T513.7-.11.
[121] T708.36-710.37.
[122] T707.11-709.34.
This fraught chain of pre-trial disclosure shows both obfuscation and great reluctance on the part of the defendants to produce documents directly relevant to the case at all. Both Mr and Mrs Damaskos clearly appreciated their importance and significance.[123] Mr Damaskos constantly defaulted to his solicitor when pressed about this,[124] as did Mrs Damaskos.[125] Thereafter she resorted a number of times to rote responses such as ‘I have no comment’ on that and other topics.[126] The course of events suggests they were equally reluctant to disclose very much to Mr Sebastiano in the course of their negotiations and to rely principally on the favourable figures contained in the February 2009 returns.
[123] T602.2-.17, T780.32-781.24.
[124] T603.9-11, T604.11-.15, T607.15-.19, T608.5 and T780.2-.12.
[125] T781.28-.29, T782.32-.37, T786.27-787.2.
[126] T787.7-.11, T579.6, T793.7, T599.27-.32, T603.9-.11, T604.11-.12.
Of potentially greater significance are supposed admissions by Mr Sebastiano in a document entitled ‘Prior Representation Statement’. The defendants required completion of this statement during the negotiation stages on the understanding:[127]
… that Funk and its associates will be entitled to reply upon any of the answers provided by me/us to the questions set out above …
and on the further understanding that:
Funk and/or its associates may clarify, qualify, withdraw or deny any representations I/we have recorded in the above section before I/we enter into any of the franchise documentation.
[127] Exhibit P1 Tab 64 p 608.
Mr Sebastiano acknowledged in this Statement seeing ‘turnover figures for the business … as it has been explained’, and he nominated the ‘Form 2 = $12,200 p week since Feb 09 = $15,000 p/week avg’.[128] He also ticked a box verifying the source of this information was ‘with Funk’ and in another section he referred to discussions regarding current turnover, nett profit and the possibility of ‘increase[d] t/over as an owner operator at the current Funk location’.[129] He further indicated the income expected each week was between $1,000 and $1,500 per week net.[130] Considered in this context, it is no surprise that Mr Sebastiano responded ‘No’ to the question of ‘(H)ave you relied on any promise …’ or responded under cross-examination ‘I relied on the facts … that’s how I read the question … they guaranteed me … it was doing $15,000’.[131] Each answer in the statement is perfectly consistent with his evidence on this topic.
[128] Exhibit P1 Tab 65 p 609.
[129] Exhibit P1 Tab 64 p 606.
[130] Exhibit P1 Tab 64 p 608.
[131] T179.20-180.34.
It is significant that neither Mr or Mrs Damaskos challenged, rebuked or corrected Mr Sebastiano as to these disclosure terms as would be expected, particularly if they were untrue. The Prior Representation Statement was obviously prepared for the very purposes of satisfying them there were no prior representations requiring correction or disabusing.
The explanations each gave for not doing so, are quite frankly incomprehensible. Mr Damaskos claimed not to have seen the Prior Representation Statement at all but that his wife did as she ‘was handling all the administrative paperwork’.[132] His evidence under cross-examination on this topic proceeded as follows:[133]
[132] T577.1-.13, 582.11-19, 582.37-583.2.
[133] T577.27-579.33.
QAnd then it says 'If yes please list the turnover for the business as it has been explained to you' and he has put in 'Form 2 12,200 per week. Since February '09 15,000 per week average'. Do you agree that was how Mr Sebastiano had been explained - the turn over had been explained to him.
ANo.
QWhat do you disagree.
AWell, as I've stated, we just explained what whatever turnover he was given, whether that was weekly, September quarter, the form 2, that was the turnover of the business. Now how Mr Sebastiano interpreted and how he came to these averages that's for him to answer not me.
HIS HONOUR
QThat's dated 14 May.
AYes.
QDid anyone to your knowledge move to disabuse him of that notion.
ANot to my knowledge. Again Joanna would have received it but like she would probably be the one to ask.
QBut you don't remember her drawing that to your attention.
AA. No.
XXN
QYou say you would disagree with that statement that it's since February 15,000 per week average.
AI'm not going to comment on the statement. That's for Mr Sebastiano –
QNo, I'm asking you you would disagree with that statement that he has put down there.
HIS HONOUR
As a question of fact.
AAs a question of fact; yes, I disagree.
XXN
QAnd I suggest that what you are saying is that had it been brought to your attention you would have told Mr Sebastiano that you disagreed with it.
AI have no comment other than on 14 May Mr Sebastiano was still receiving department sales so this is Mr Sebastiano's working out so that's all I can say. I've got nothing further to say about this document because I didn't receive it.
QWhat I'm suggesting is that Mr Sebastiano is clearly saying that he has been told that it's 15,000 per week average. You've said that you agree with that statement that he has put down.
AWell, I do. In February it was 15,000. Those documents stated 15,000. But, like, every week as you can see fluctuates. There is no regularity.
QAnd what I was suggesting was that had you been aware of this statement, the prior representation statement, you would have clarified this position with Mr Sebastiano.
AI'm not sure I can answer that because I didn't see the statement so - this was 11 years ago so I have nothing further to say on that other than no comment I suppose.
QNow if you look at the third box 'Have you verified the turnover with Funk' referring to the previous second box and Mr Sebastiano has ticked yes.
AYes.
QAnd do you agree that he had verified the 15,000 a week average turnover with you.
AI agree Mr Sebastiano was getting weekly and daily turnovers for this -
QI'm asking you the question: do you agree that Mr Sebastiano had verified the 15,000 per week turnover with you.
ANo.
QBut again because you say you didn't know of the statement you didn't ever take that up with Mr Sebastiano.
AI don't recall Mr Sebastiano saying ever to me that 'Oh the turnover is 15,000'.
QIf we turn to p.606, directing your attention to the second last box; do you agree that you or Funk has made statements in relation to the average actual or projected profits or earning of the Funk franchise.
AYes.
QAnd what I'm suggesting is that those statements were the 15,000 per week turnover and the 2,000 per week net profit.
AAll I can say is whatever information we gave him that was the information that he had to go by.
He later accepted having no discussion at all about the Prior Representation Statement with Mr Sebastiano after it was completed.[134]
[134] T582.4-.10.
For her part, Mrs Damaskos was even more defensive about the issue than her husband. She at first recalled ‘briefly going through the documents when I next saw Mr Sebastiano’, during which he supposedly ‘had worked out an average’ himself, but afterwards ‘that was all operational and my husband was handling that’.[135] Later under cross-examination there were the following exchanges about this:[136]
[135] T695.2-.33.
[136] T758.16-759.16.
Q.If you did have a discussion in those terms you would have checked that with your husband, surely.
A.No.
Q.You were simply going to proceed on the basis that Mr Sebastiano had said it had been represented to him that it was 15,000 per week and you accepted that.
A.He said that he worked out the average, he had all the department sales and it came up to about 15,000 and we just moved on.
HIS HONOUR
Q.In venting [sic] (vetting) this document on speaking with him, how could you judge whether what he was saying was represented was untrue or misleading. This document is designed to protect your side of the transaction, isn't it. So how could you judge whether what he was asserting was said was true or not.
A.Because I took his word for it. He said that he worked out the average based on all these department sales he had and it came up to about 15,000.
XXN
Q.But your response doesn't accord with the purpose for which this document was required, does it, as set out in the first paragraph of the prior representation statement.
A.Sorry, could you repeat the question?
Q.Your explanation doesn't accord with the purpose for which the document was required as set out in the first paragraph of the prior representation statement.
A.Well, my understanding was that we were of the same understanding. He had all the department sales and he worked out the number and he wrote that down and he said it was, you know, an average and it was about 15,000, so we moved on from there, we didn't dwell on that, and he said that he took the 12,200 per week from the Form 2.
Q.I suggest that if Mr Sebastiano had said that, then you would have wanted to ensure that that was not unauthorised, untrue or misleading by asking your husband.
A.Well I didn't, I took his word for it and we moved on.
Plaintiffs’ counsel returned to the issue with her the following day:[137]
[137] T774.15-775.33.
Q.I can take you to that if you need to. In answer to a question from his Honour you said 'He said he had worked out the average based on all the departmental sales he had and it came to about $15,000'. Do you recall giving that evidence. Is that your evidence.
A.Yes.
Q.That's what Mr Sebastiano said about how he worked out the 15,000.
A.Yes.
Q.Earlier in your examination you said in answer to a question from my learned friend 'Did he say how he worked out that average. No, no. We just moved on. He said he worked out an average and it was about 15,000'.
A.Yes.
Q.I suggest the two answers are inconsistent.
A.No, I deny that.
Q.In the passage I just read to you you've said in answer to a question 'Did he say how he worked out that average', 'No, he didn't. We just moved on'.
HIS HONOUR: What is the reference?
MR BURNETT: 695 line 21. And the second reference is 758 line 32.
XXN
Q.I suggest the two are clearly inconsistent. You don't accept that.
A.Not really, no.
Q.Well in one you've said he worked out the average based on the departmental sales and that's how he came to 15,000 and the other when you said 'Did he say how he worked it out'. 'No, he just moved on. He said he had worked out an average and that was about it'.
A.Yes, he said that he worked out an average and it was about 15,000. I could change - I can rephrase that to say I knew that he had all the department sales so I thought that he worked out the average from the department sales.
Q.That's not what you said later on in answer to his Honour's questions. 'He said he worked out the average sales based on the departmental assets'. You don't remember, do you.
A.I can remember him saying that he worked out the average and it worked out to about 15,000.
Q.But you said in answer to his Honour's questions that 'Mr Sebastiano said he had worked out the average based on the departmental sales'.
A.I can't comment on that.
Q.I suggest that one or other is clearly false on your own evidence.
A.I can't comment on that.
Q.I suggest you've made up the meeting to explain the prior representation statement.
A.I strongly deny that.
Q.I suggest you don't have any memory of the meeting whatsoever.
A.I deny that.
Q.You are saying inconsistent things to assist your case.
A.I deny that.
Mrs Damaskos did not mention this supposed conversation with Mr Sebastiano at the time the defendants responded to a Notice to Admit Facts, in which the proposition was squarely put that they ‘did not clarify, withdraw or deny any representations made in the Prior Representation Statement ...’.[138]
[138] Exhibit P11 Tab 13 paras [55]-[58] and Tab 14.
It is remarkable that the Prior Representation Statement was not employed by the defendants for its intended purpose. Both Mr and Mrs Damaskos tended to deflect responsibility for this state of affairs to the other, as appears from the above extracts of their evidence. Given that misrepresentations of the kind under discussion are adamantly denied, one reasonably expects they would quickly move to correct misunderstandings or misapprehensions of this kind. The failure to do so strongly suggests the defendants did not then dispute the assertions made by Mr Sebastiano as were contained in the Prior Representation Statement. No other inference is reasonably open on an objective analysis of the evidence on point.
It is to be recalled that Mr Sebastiano made up his mind to contract on the basis that he would be better off financially (as well of course for lifestyle considerations), but only if the figures ‘stacked up’. The undeniable fact is that the figures did not stack up, so that if Mr Sebastiano was exposed to the correct turnover figures, more likely than not he would not have proceeded. He knew that he needed at least $1,000 a week to level with his current income, so anything less was obviously unappealing. Weekly returns of between $12,000 and $14,000 were at best only likely to leave him in no better position financially than he already was. On that understanding of the circumstances, no reasonable person in the financial position of Mr Sebastiano at the time would have proceeded with the franchise arrangement.

There is a further consideration to weigh as well. It transpires that Funk Flinders Street was advertised for sale in January 2019. The advertisement promoted it as turning over $15,000 per week, when in fact the sales reports for 2018-2019 demonstrate this was not the case.[139] When taxed about this issue under cross-examination, Mr Damaskos was reluctant to even accept that the advertisement related to the Flinders Street Funk store when it obviously did.[140] Mrs Damaskos accepted the advertisements might appear to mislead, but claimed she did not authorise them,[141] and she remained evasive before accepting it was misleading.[142]
[139] Exhibit D9.
[140] Exhibit P12A, T565.8-567.24.
[141] T721.4-724.8.
[142] T723.28-724.8, T713.11-.31, T715.24-716.8.
For all of the above reasons in combination, the evidence of the natural defendants as to turnover representations held out to Mr Sebastiano is unsatisfactory in a number of material respects, so much so that it cannot be accepted. All the objective and documentary evidence points to the fact that $15,000 was the uncorrected figure on the table at relevant times leading up to the completion of the Franchise Agreements, a figure substantially based merely on February 2009 sales. There is no objective support in the contemporary documentation for the defendants’ claim that the situation was otherwise. On the contrary, the base figures in the business plan, the core assumptions in the cash flow projections and the unrefuted statements made in the Prior Representation Statement, contain a consistent common thread that this was the position held out to him and on which he relied.
Since the actual sales figures do not support anything like weekly turnover of around $15,000 there was no reasonable basis upon which the stated representations of sustained average weekly earnings was supportable. These were clearly representations of existing fact, maintained and reported throughout the period leading up to franchise related contracts.
The evidence of Mr Sebastiano was consistent and supported by the contemporary documents, to the point that it is proven on the balance of probabilities that it was represented to him the weekly takings of Flinders Street Funk consistently averaged $15,000 since February 2009. This was a representation as to existing facts and circumstances. The claim in misleading or deceptive conduct is therefore made out.
On the above findings, Mr Sebastiano was not aware of the actual sales figures either before or after February 2009, apart of course for the September 2008 quarter figures. In contrast, the defendants must necessarily have known the actual trading position, given that Mr Damaskos visited Flinders Street Funk on a daily basis and sought them out and because they were available to him online from the Head Office at any time.[143]
[143] T641.26, 642.22-643.11.
Apart from the evidence of Mr Sebastiano summarised earlier, his evidence was to the effect that he was told in early February 2009 that ‘the store had recently been doing $15,000 a week … approximately since the start of the year’[144] that he was handed a copy of the Departmental Sales Report for 1 February to 6 February 2009,[145] and to ‘come back again next week and get another report’, which he was given.[146]
[144] T58.31-.38.
[145] T59.1-60.22, Exhibit P1 Tab 8, p 63.
[146] T60.26-27.
It is clear from this evidence taken in the entire context of the dealings with Mr Damaskos over the course of time, that Mr Sebastiano was induced to enter into the Franchise Agreements on the strength of the understanding and reassurances that the 2009 turnover figures as were presented to him, in fact represented the present-day norm. On the above conclusions, he relied principally on the Weekly Sales Reports for February 2009, a proposition he appeared to accept at one point under cross-examination.[147]
[147] T165.32-.37.
Counsel for the defendants attempted to make something of the fact that the words pleaded in the statement of claim were not necessarily those spoken of by Mr Sebastiano during the course of his evidence. That rather reads down the base implication that the February figures could be relied on. The plain evidence of Mr Sebastiano was that these were what he relied on. This situation is as King CJ considered it to be in Copping v ANZ McCaughan Ltd & Ors (No 2):[148]
George Copping did not say expressly that he relied upon the precise statement which was found to be negligent. It would be unreasonable to expect him to dissect what Irvin told him and to indicate which parts he relied upon. He said that he relied upon what Irvin told him. If that is so and if a material part of it was a negligent misstatement the reasonable inference is that he relied in part upon that misstatement.
[148] (1995) 181 LSJS 157, 158. (Mr Irwin was the servant of ANZ McCaughan).
Furthermore, the proven circumstances clearly gave rise to the reasonable expectation that the true trading figures would be disclosed. There was no reasonable basis for the position that the trading figures continued to be maintained at the February 2009 levels. This misrepresentation is proven to have induced Mr Sebastiano to rely on them when executing the Franchise documents. This conclusion is consistent with the approach taken by the trial judge in Southern White Pty Ltd v Slinger & Slinger,[149] and upheld on appeal in Slinger and Anon v Southern White Pty Ltd.[150] In that case the proven conduct was constituted by the failure to correct turnover figures at the time of contracting, was capable of misleading and deceiving,[151] and on the basis of an ‘obligation to update the figures’.[152]
[149] [2004] SADC 43.
[150] (2005) 92 SASR 303.
[151] Ibid [64].
[152] Ibid [66] and see Catalano v Zollo [2006] SADC 111, [73]-[74].
The action for misleading and deceptive conduct based on inaccurate turnover figures must therefore succeed on the additional ground that those figures were provided knowing they would be relied on, by failing to correct the position in circumstances in which there was a genuine expectation the true figures would be disclosed.
Net profit of $2000 and wages representations
An additional consideration supporting these conclusions resides in a staff roster provided to Mr Sebastiano in February 2009, indicating wages stood at $3,938.35 per week, or about $3,000 excluding the Manager’s wage,[153] Ms Cameron’s wages as Manger were $908.20 per week based on a working week of 47 and a half hours, at an hourly rate of $19.12. This roster discloses wages levels in excess of the weekly figures contained in the Form 2. The cost of wages was of obvious material importance to Mr Sebastiano. He said as much in the Prior Representation Statement, although not in so many words, ‘(W)hat amount of income do you expect to earn each week … $1000-$1500 NET’.[154]
[153] Exhibit P2 Tab 106, T62.7-.22.
[154] Exhibit P1 Tab 64, p 608.
The source material in the Form 2 shows that wages levels between 5 August 2007 and 30 June 2008 were $134,492 per annum and for the period between 1 July 2008 and 27 February 2009 were $113,765.[155] Mr Sebastiano made handwritten notes on the Form 2 calculating average weekly wages of $1,250 for the former period and $1,130 per week for the latter period based on the annual figures given.[156]
[155] Exhibit P1 Tab 12.
[156] Exhibit P1 Tab 12 p 87.
Once annualised, his calculations exceed the wages levels stated in the 2008 September quarter figures of $42,369.65 per annum, or 25.36 per cent of turnover.[157] At first, Mr Damaskos purported to distance himself from accepting the February 2009 roster was presented to Mr Sebastiano at all.[158] It was undeniably in his handwriting. Later he endeavoured to explain that it was given to Mr Sebastiano just before handover in June.[159] This is incorrect due to the business plan prepared for Mr Sebastiano on financial advice of Mr Fanto for the purpose of supporting a loan application for the ANZ Bank on 6 April 2009, reproduces precisely the same list of employees, hourly rates, hours worked per week and gross payments.[160]
[157] Exhibit P1 Tab 1.
[158] T562.33-.37.
[159] T583.38.
[160] Exhibit P1 Tabs 41 and 42 p 387.
Matters were compounded by the fact that another list of current employees given to Mr Sebastiano at the time of settlement, painted a somewhat different picture.[161] It listed five employees whereas the February 2009 roster, listed six. The omitted employee was a Pam Turtur, employed at Flinders Street Funk immediately before and immediately after handover,[162] in circumstances in which it appears she may have been paid in cash ‘off the books’ beforehand, a situation Mr Damaskos was neither prepared to accept nor deny.[163] This situation caused Mr Sebastiano to question why ‘my wages were a lot higher than what I anticipated them to be’.[164] Whatever the explanation, the list of employees given at settlement understated actual current wages by $669.20 per week, that is by the amount earned by Pam Turtur.
[161] Exhibit P2 Tab 88.
[162] T90.20-.34.
[163] T586.19-587.10.
[164] T104.25-.33.
Representations as to catering
Clearly enough, catering constituted an important component of the Flinders Street Funk business, based on the defendants’ own figures. Therefore, it necessarily formed an integral component of the representation as to achieving $15,000 per week turnover. Certainly the February 2009 figures for the SA Water catering was a relatively significant component when one recalls the figures for catering that are known of 16.47 per cent, 7.96 per cent, 17.93 per cent and 9.15 per cent of total turnover for the four respective weeks thereof.[165] The diary extracts retained by Mr Sebastiano do not indicate any downturn in this aspect of the business during March and April 2009, even though it can be accepted the weekly figures fluctuated somewhat. The actual catering sales for the financial year 2008/2009 are graphically represented in the Appendix B to these reasons. Obviously, any reduction in the catering necessarily reduced weekly turnover.
[165] Exhibit P1 Tab 8, summarised earlier in these reasons.
As previously documented, Mr Sebastiano proceeded on the understanding that the February sale figures were maintained throughout the following months until the end of June 2009. He was unaware of the SA Water custom in Flinders Street Funk and there is nothing in the documents produced to the court suggesting otherwise.[166] At the same time precious little evidence was adduced as to how long beforehand SA Water was catered by this store. Although Mr and Mrs Damaskos suggested it was for a relatively short period of time, they produced no documentary evidence corroborating this.[167] In that situation their evidence on this topic ‘is to be weighed accordingly to the proof which it was in the power of one side to produce, and in the power of the other to have contradicted it’: Blatch v Archer.[168]
[166] T292.19-.23.
[167] T493.17-494.34, T591.27-.31, Mr Damaskos. T681.27-.29, T700.15-.17, T764.36-766.11 – Mrs Damaskos.
[168] (1774) 1 Cowp 63, 65, 98 ER 969, 970.
It was undoubtedly the case that Flinders Street Funk no longer catered for SA Water and that turnover coincidentally fell as a consequence, as soon as Mr Sebastiano became the operator. Based on the findings made earlier, Mr Damaskos did nothing to notify the actual situation, or to correct any misunderstanding Mr Sebastiano was labouring under as to the maintenance of the February levels of catering.
Here once again, the circumstances give rise to a reasonable expectation that the figures between March and June 2009 would be corrected if the levels of catering were not maintained, particularly with the expected loss of significant custom. The fact that Mr Sebastiano visited the Funk Victoria Square café in April 2009 before it commenced trading on the 22^nd, and the fact that he knew it was in the SA Water building, did not obviously convey with it an appreciation of the fact that SA Water would be transferring its business to that store. Irrespective of that consideration, the fact remains that it is not reasonably open to impute knowledge in Mr Sebastiano that transfer of the SA Water catering business would occur. In any event his evidence that it did not occur to him is a reasonable one to accept in the circumstances.
Misleading or deceptive conduct is therefore proven on account of the failure to tell Mr Sebastiano of the situation planned for the SA Water catering at Flinders Street Funk.
The claims to relief
The plaintiffs put forward various heads of damage under s 52 of the Trade Practices Act or alternatively under s 7 of the Misrepresentation Act. These include losses representing the difference in value between what was purchased and what was paid, as well as trading losses assessed at $40,827. There is a further claim to damages for Mr Sebastiano personally of $60,000 for the lost opportunity to earn as much as he was immediately before entering into the Franchise Agreements, and for expenses incurred by him amounting to approximately $10,000. Claims for consequential relief by way of avoiding or setting aside the Agreements, pursuant to s 87 of the Trade Practices Act are also made.
The starting point for consideration of these issues is to recall that the business was purchased for $350,000 and that the total sum of $412,489.89 was paid over at settlement on 1 July 2009. Not much was put by counsel on either side as to precisely what relief was applicable and certainly no detailed calculation of damages was attempted. For those reasons further submissions will become necessary on those topics. It is however necessary to deal with several preliminary topics which require resolution preceding issues of relief and damages.
Breach of Franchising Code of Conduct
The plaintiffs further claim relief for alleged breaches of the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) (the Franchising Code). Section 51AD of the Trade Practices Act provided that a ‘corporation must not, in trade or commerce, contravene an applicable industry code’. The Franchising Code is an applicable Industry Code for this purpose. When a breach of the Franchising Code is proven, there is necessarily a breach of s 51AD of the Trade Practices Act, thus damages may be awarded under s 82, or discretionary relief granted under s 87: Master Education Services Pty Ltd v Ketchell.[169]
[169] (2008) 236 CLR 101 [39] and [40].
Regulation 6(1) of the Franchise Code provides (so far as relevant):
Part 2 – Disclosure
Division 2.1 – Disclosure document
6.     Requirement to give disclosure document
(1)     A franchisor must give a disclosure document under Annexure 1 to:
(a)     a prospective franchisee …
Regulation 3(1) thereof provides that ‘in this code’:
disclosure document means:
(a)    For the grant, renewal or extension of a franchise – a document that contains the information mentioned in Annexure 1; …
Regulation 7 of the Franchising Code imposes manner and form layout requirements for the disclosure document in this manner:
7.     Layout
(1)     Information in a disclosure document must be set out:
(a)     in the form and the order, and under the numbering, set out in Annexure 1 or 2 as the case requires (the relevant Annexure); and
(b)     under the titles used in the relevant Annexure.
(2)A disclosure document must have a table of contents based on the items in the relevant Annexure, indicating the page number on which each item begins.
Regulation 9 thereof provides:
9.     Purpose and content of disclosure document
(1)The purpose of a disclosure document under Annexure 1 is to give to a prospective franchisee, or a franchisee proposing to enter into, renew or extent a franchise agreement, information from the franchisor to help the franchisee or prospective franchisee to make a reasonably informed decision about the franchise.
(2)     A disclosure document:
(a)     must include the information mentioned in Annexure 1; and
(b)     may include additional information under the heading “Other relevant disclosure information”; and
(c)     must be signed by a director or an executive officer of the franchisor.
The Annexure 1 referred to in the above Regulations refers to the provision of earnings information to a potential franchisee of the following type:
ANNEXURE 1
DISCLOSURE DOCUMENT FOR FRANCHISEE
OR PROSPECTIVE FRANCHISEE
…
19.     Earnings information
19.1   Earnings information for the franchise, if it is given, must be based on reasonable grounds.
19.2   Earnings information may be given in a separate document attached to the disclosure document.
19.3   Earnings information includes information from which historical or future financial details of a franchise can be assessed.
19.4   If earnings information is not given – the following statement:
The franchisor does not give earnings information about a [insert type of franchise] franchise.
Earnings may vary between franchises.
The franchisor cannot estimate earnings for a particular franchise
19.5   Earnings information that is a projection or forecast must include the following details:
(a)     the facts and assumptions on which the projection or forecast is based;
(b)     the extent of enquiries and research undertaken by the franchisor and any other compiler of the projection or forecast;
(c)     the period to which the projection or forecast relates;
(d)     an explanation of the choice of the period covered by the projection or forecast;
(e)     whether the projection or forecast includes depreciation, salary for the franchisee and the cost of servicing loans;
(f)     assumptions about interest and tax.
The disclosure document under the Franchising Code in this instance was provided to the plaintiffs in early June 2009.[170] This merely furnished the following brief observations:[171]
[170] Exhibit P2, Tab 83.
[171] Ibid p 658.
19. Earnings Information
The Franchisor does not give earnings information about the Funk business.
Earnings may vary between franchises.
The Franchisor cannot estimate earnings for a particular franchise.
The question therefore becomes whether this scant level of disclosure complies with the earnings disclosure requirements, and particularly with clause 19.3 of Annexure 1, which requires ‘information from which historical or future financial details of a franchise can be assessed’. This begs the further question therefore, as to whether the earnings information required is confined to that actually provided in the disclosure document, or extends to any document attached to it?
Counsel for the defendants submitted it was plain that clause 19.5 of Annexure 1 relates to ‘earnings information’ actually provided in the disclosure statement. He argued that when read in conjunction with clauses 6, 7 and 9 of the Franchising Code, the obligation of disclosure is confirmed to the terms of Annexure 1, rather than deriving from the Franchising Code itself. Accordingly, so the submission proceeded, the scope of clause 19.5 of the Franchising Code is limited to ‘earnings information’ actually provided in the disclosure document itself. It was further put that clause 19.2 permitted ‘earnings information’ to be furnished in a separate document, providing it was attached to the disclosure document itself. Defence counsel submitted the contrary view in that it serves only to discourage franchisors from providing earnings information to prospective franchisees, thus undermining the evident purpose of the franchising scheme. In one sense the submission on behalf of the defendants distils into the proposition that if earnings information was not provided, the obligation to comply with the Franchise Code as to content, was not invoked.
Counsel relied heavily on Manhattan (Asia) Ltd v Dymocks Franchise Systems (China) Ltd in support of this contention.[172] That case concerned a Franchise Agreement of a Dymocks book store in Hong Kong. At issue were alleged (mis)representations as to pedestrian traffic passing the shop, expected sales revenue and expected nett profits, said to be non-compliant with the Franchising Code. Jurisdiction to try the case came by waiver and as the franchise agreements were governed by the law of New South Wales. A preliminary question determined was whether the Franchising Code requirements applied to financial information not provided within or attached to the disclosure document.
[172] (2014) 225 FCR 508, [65]-[73].

It was held in Manhattan that clause 19 in Annexure 1 of the Franchising Code only applies to earnings information provided in or with a disclosure statement:
[69] As a matter of policy, there is force to Manhattan’s argument that the time at which Manhattan needed the “earnings information“ was before it entered into the Lease, even though DFS China had no obligation to enter into a franchise agreement with respect to the Central Building at that time. It exposes a gap in the scheme of the Code if the requirement in item 19.1 (that earnings information, if it is provided, be reasonably based) does not apply to financial forecasts provided by the franchisor otherwise than under a disclosure document where the franchisee relies on the forecast to undertake substantial obligations to third parties which are necessary to enable the conduct of the franchised business.
…
[71] The scheme of the Code is to focus the obligation to provide a disclosure document on the decision to enter into, renew, extend or extend the scope of a franchise agreement. It does not focus that obligation on the time at which a franchisee or prospective franchisee enters into collateral arrangements with third parties who are not associated with the franchisor. The only general protection afforded by the Code to a franchisee in relation to representations made by a franchisor is under cl 16(1A), which prohibits a franchise agreement from containing or requiring a franchisee to sign a waiver of any verbal or written representation made by the franchisor.
A different view was taken by another judge of the Federal Court in Australian Competition and Consumer Commission (ACCC) v South East Melbourne Cleaning Pty Ltd (in liq) (formerly Known as Coverall Cleaning Concepts South East Melbourne Pty Ltd).[173] One of a number of issues in this later decision was the alleged failure to comply with the Franchising Code, by not adhering to prescribed disclosure requirements prior to entering into Franchise Agreements. This judge upheld the failure to comply with the Franchising Code and hence found contravention of s 51AD of the Competition and Consumer Act 2010 (Cth).
[173] [2015] ATPR 42-503.
Briefly stated, the facts were that a Franchise Schedule was provided setting out the cost of each of the different franchise plans available and the amount of ‘monthly initial business’, to be provided to the franchisee under each plan. Of this situation the judge reasoned:
Coverall’s disclosure document
[71]  Its disclosure document asserted that Coverall did not provide “earnings information“ about the franchise, that earnings may vary between franchises and that Coverall could not estimate earnings for a particular franchise. It described the information required to be provided by way of a projection or forecast as “not applicable“.
[72]  Contrary to Coverall’s assertion that it did not provide “earnings information“ to either Mr Eliaser or Mr Patel, in my view it did. It provided them with the Franchise Schedule which set out the monthly earnings which would be generated for the franchisee under each of the different franchise plans offered by Coverall. This was “earnings information“ as it indicated to Mr Eliaser and Mr Patel the monthly earnings under each available franchise plan from which they could assess the future financial details of the franchise.
[73]  The Franchise Schedule also contained a “projection or forecast“ as defined in cl 19.5 as it indicated how much monthly revenue each franchise plan was expected to generate for Mr Eliaser and Mr Patel.
[74] Coverall was therefore required to provide further information to Mr Eliaser and Mr Patel, as prescribed in cl 19.5 (as set out at [69] above) which it did not. Amongst other things it did not provide the facts and assumptions on which the projected or forecast monthly earnings figures were based.
[75]  Finally, for the reasons I explain when dealing with the issue of Coverall’s misleading conduct, I am not satisfied that the forecast or projected monthly earnings in the Franchise Schedule were based on reasonable grounds.
[76] I am satisfied that Coverall failed to comply with the Code and it contravened s 51AD of the CCA. I made declarations accordingly.
The decision in Manhattan was not referred to. It can be seen from paragraph [72] of the judgment in Coverall Cleaning Concepts that the terms of the disclosure are all but identical to those contained in clause 19 of the defendants’ disclosure statement in this case. The situation in the Manhattan case was quite different. On that appreciation of matters, this court at this level of the hierarchy is all but bound by Coverall Cleaning Concepts. If that view of matters is wrong, then this court could not be bound by either decision as there are otherwise irreconcilable decisions of two judges of the one court on the point.
In JM & PM Holdings Pty Ltd v Snap-On Tools,[174] the New South Wales Court of Appeal noted the conflicting authorities on this very point, but then preferred not to express any view about the merits, on the basis that it was unnecessary as the action failed in any event on the issue of causation.[175] The decision in Manhattan can be further distinguished on the footing that the Franchising Code requires the provision of a current disclosure document: Spar Licensing Pty Ltd v MIS Qld Pty Ltd.[176] No current financial information was forthcoming in this instance in any form, Franchising Code compliant or not.
[174] [2014] NSWCA 347.
[175] Ibid [1], [5], [63]-[67], [82].
[176] (2014) 314 ALR 35, [40], [55], [82]-[83], [90].
Far from undermining the purpose of transparency, the within construction serves to better allow a prospective franchisee to make an informed decision, thus both raising ‘the standards of conduct in the franchising sector without endangering the vitality and growth of franchising’.[177] To adopt a passage from the judgment of Kirby J in Nguyen v Taylor,[178] when speaking of analogous legislation designed:
… to reduce the opportunity for gazumping … achieved … by shifting to the vendor the obligation to make disclosure to the purchaser … [and] … to do away with the costly and time-consuming searches and inquiries …
[177] Ibid [99].
[178] (1992) 27 NSWLR 48, 52.
To construe the Franchising Code in the manner contended for by defence counsel would leave it largely ineffective in respect of earnings information. All that is needed to opt out, is for a franchisor simply to provide no particulars in the disclosure document, as was the case here and as was the case in Coverall Cleaning Concepts. Such a result serves only to render the financial disclosure provisions of the Franchising Code largely ineffective, surely a situation scarcely intended by Parliament.
This aspect of the plaintiff’s case therefore succeeds. The question of what flows and what remedies are appropriately applied (if any) is a matter for further submissions once the parties have considered these reasons.
Exclusion and disclaimer clauses
The next major submission on the defendants behalf relates to supposed acknowledgements that Mr Sebastiano did not rely on and was not induced by any representation in making the decision to transact. They point to clause 10 of the Sale Agreement, clauses 12 and 24 of the Franchise Agreement, clauses 13 and 18 of the Licence Agreement and to several aspects of the Prior Representation Statement. Putting aside the latter for the moment, the former documents acknowledge in various ways, taking financial and accounting advice and making an independent evaluation (Sale Agreement), that no reliance was placed on any ‘terms, conditions, warranties or undertakings’ (Franchise Agreement), and transacting ‘with full appreciation of the business risk’, and taking legal, accounting and other professional advice (Franchise Agreement).
Disclaimer clauses and acknowledgements of this kind do of course form a part of the entire context and surrounding circumstances in assessing whether the impugned conduct was misleading or deceptive: Butcher v Lachlan Elder Realty Pty Ltd.[179] Contractual disclaimers such as those under consideration will generally also influence questions of causation: Campbell v Backoffice Investments Pty Ltd,[180] Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd.[181] This is a question of fact for the court to resolve: Clark Equipment Australia Ltd v Covcat Pty Ltd.[182] Such clauses are of ‘no effect except to the extent (if any) to which … the court will allow reliance on it as being fair and reasonable in the circumstances of the case’ by virtue of s 8 of the Misrepresentation Act.
[179] (2004) 218 CLR 592, [39], [130].
[180] (2009) 238 CLR 304, [29], [31].
[181] (2005) 220 ALR 211, [100]-[104].
[182] (1987) 71 ALR 367, 371-372.
The resort to the Prior Representation Statement takes the several acknowledgements pointed to by the defendants completely out of context. As explained earlier, whatever else was written by Mr Sebastiano in it, it is clear his decision to proceed with the Funk Flinders Street franchise was squarely based on the clear understanding that since February 2009 turnover was maintained at an average of $15,000 per week, together with the consequent expectation that his personal income was likely to come in at between $1,000 and $1,500 per week.[183] His reference in the Prior Representation Statement ‘since Feb 09 = $15000 per week average’ came directly from the Form 2 that ‘current turnover’ was referable to the $15,000 figure.[184]
[183] Exhibit P1, Tab 65.
[184] T82.25-.38.
Such legal advice as Mr Sebastiano did obtain was unrelated to the sale agreement or to representations as to turnover or profitability.[185] The fact that Mr Sebastiano may have resolved to purchase the business when making the offer of $370,000 rather begs the question, on what basis was that decision made?[186] It is clear his earlier interest was not conclusive, since he later took provisional advice from several professional sources before proceeding and there were other due diligence type contingencies to go through, as well as to complete incorporation of Hype Investments and to secure finance. Critically, his final decision to contract in late June 2009 was squarely based on continuing assurances that the February 2009 returns continued to be realised in the intervening period.
[185] T344.3-.11, T363.18-366.14, Mr Branch.
[186] T155.5-156.37.
Limitation defence
A discrete aspect of the plaintiffs’ case is a claim for liquidated damages for sums paid as a consequence of entering into the Franchise and Sale Agreements. These are particularised as:
·Incorporation fees for Hype Investments of $1,218.18;
·Legal fees paid to Donaldson Walsh (Mr Branch) of $3,863.63;
·Legal fees paid to the defendants’ lawyers DC Strategy of $3,000;
·Accounting fees for Fanto Martino & Co of $820; and
·Conveyancing fees of $1,849.90.
It is proven that the Incorporation fee was $1,300,[187] paid in early May 2009,[188] legal fees to Donaldson Walsh totalling $4,250 including GST,[189] paid in late May and early June 2009,[190] DC Strategy’s legal fees, totalling $4,000,[191] paid in March 2009,[192] and accounting fees of Fanto Martino & Co totalling $1,430 including GST,[193] paid by no later than 3 June 2009.[194] These were paid by Mr Sebastiano personally.[195]
[187] Exhibit D16.
[188] Exhibit D16 Tab 56.
[189] Exhibit P2 Tabs 81, 82 and 86.
[190] Exhibit P1 Tab 52, Exhibit P2 Tabs 81, 82 and 86, the ‘Direct Credit’ references.
[191] Exhibit P1 Tab 7A; T480.35 – T481.28 (Mr Damaskos); T688.19-34 and T689.7-14 (Mrs Damaskos).
[192] T688.19-.22.
[193] Exhibit P2 Tab 107.
[194] Exhibit P1 Tab 5A, Tab 76.
[195] T150.38-151.39.
The defence case is that these expenses fall outside the six-year limitation period for instituting actions mandated by s 82(2) of the Trade Practices Act. This provided an action under s 82(2) for the recovery of loss or damage, ‘may be commenced at any time within 6 years after the day on which the cause of action relating to the conduct accrued’.
As the within proceedings were issued on 23 June 2015, the defendants contended that the plaintiffs are time barred from obtaining relief, since the payments were made well outside the six-year limitation. The defendants submit that the plaintiffs’ cause of action accrued before 23 June 2009, as there is but one cause of action arising out of the same misleading or deceptive conduct. As loss or damage accrues when first sustained, which was in the instance by virtue of the above payments, this in effect crystallising their cause of action. It was submitted that it follows from this course of events that the claim is statute barred. It should be noted there is no equivalent limitation under the Misrepresentation Act.
This somewhat disingenuous submission is misplaced as a question of general principle. The within cause of action accrued no sooner than when the franchise related agreements were entered into. Loss was sustained when monies were paid thereunder. This position flows from the fundamental principle that loss or damage accrues when it is sustained as a consequence of misleading or deceptive conduct: James v ANZ Banking Group,[196] Wardley Australia Limited v Western Australia.[197] The active misrepresentations which found the action persisted after 23 June 2009 and any resultant loss or damage necessarily arose after the franchising contracts were entered into. The above payments were in any event made before any of the subject Franchise Agreements were entered into, and hence ex hypothesi before any relevant cause of action arose.
[196] (1986) 64 ALR 347, 392.
[197] (1992) 175 CLR 514, 532-533.
Whether or not those payments are recoverable and if so at the instance of which plaintiff or plaintiffs, are questions for further debate.
Assessment of Damages
Section 82 of the Trade Practices Act takes up the common law practical common sense concept of causation: Wardley Australia Ltd v Western Australia.[198] The task for the court is to ascertain what loss flows directly by the contravening conduct and to assess the amount or determine other remedies necessary to compensate for that loss: Marks v GIO Australia Holdings.[199] As explained by the High Court in Murphy v Overton Investments Pty Ltd:[200]
… outgoings and expenses incurred which would not have been incurred but for misleading and deceptive conduct are compensible because they are caused by the conduct of which complaint was made.
[198] (1992) 175 CLR 514, 525.
[199] (1998) 196 CLR 494, [17]. [38], [100]-[103], [152].
[200] (2004) 216 CLR 388, [68].
In those cases in which it is shown a party would not have entered into a contract but for misleading and deceptive conduct, the measure of damages is obtained by deducting face value at the date of purchase from the actual purchase price: HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd,[201] Potts v Miller.[202] In such cases account is taken of all matters known to the court at the time the assessment is carried out: Kizbeau Pty Ltd v WG & B Pty Ltd.[203]
[201] (2004) 217 CLR 640, [35].
[202] (1940) 64 CLR 282, 299-300.
[203] (1995) 184 CLR 281, 291-296.
Section 87 of the Trade Practices Act further provides for a broad range of remedies other than compensatory damages, which may be granted where a breach of s 52 thereof is proven. Such remedies include those contained in s 87(2) for example, by declaring a contract void ab initio, or void from a certain date. Other remedies include declaring to enforce a provision of a contract. These alternate remedies are designed for reasons of public policy in protecting people in trade and commerce from misleading and deceptive conduct: Awad v Twin Creeks Properties Pty Ltd.[204] Whether to limit an applicant to damages under s 82 ‘is a question in the nature of a discretion to be approached by reference to the facts of the particular case’.[205]
[204] [2012] NSWCA 200, [43].
[205] Ibid.
The plaintiffs have proven that misrepresentations were made as to average weekly turnover of around $15,000 per week and in failing to disabuse Mr Sebastiano of this understanding. These were actionable misrepresentations by understating weekly wage levels and failing to notify him that the SA Water catering was about to cease at Flinders Street Funk.
The weekly sales figures for the financial year shown graphically in Appendix A demonstrate that average sales for the first half of the 2009 calendar year were just under $13,000 per week. The weekly sales records for the period of six months post contract show that $15,000 per week was only obtained in weeks 21 and 22. As found already, the defendants have not established they had reasonable grounds for making such representations.
The misleading and deceptive conduct caused the plaintiffs to enter into the Sale and Franchise Agreements and the Licence to Occupy through the agency of Mr Sebastiano. Those misrepresentations were calculated to induce Mr Sebastiano to enter into the contracts, and so the fair inference is that he was induced to do so.
Valuation of the business
In 2011, the plaintiffs sought an appraisal of Flinders Street Funk in light of the prospect of selling the business. The appraiser Mr Wood estimated the value of the business at the time at between $140,000 and $165,000.[206] Mr Sebastiano explained that he did not proceed with sale, because it ‘was well below the purchase price and the amount of money that I had tipped in …’.[207] The plaintiffs offered the business for sale again in 2012 and in fact received an offer of $300,000, which was rejected as ‘too low’.[208]
[206] Exhibit P2 Tab 149.
[207] T113.11-.14.
[208] T305.35-.38, T659.24-660.23.
Neither refusal to sell was unreasonable in the circumstances. To sell at those values was to crystallise loss at no less than $150,000 so far as base sale price was concerned, and more if shortfalls in weekly earnings are taken into account. Mr Sebastiano remained under a duty to mitigate his loss, so that the misrepresentations continued to operate to induce him to retain the business in order to do so: Smith New Court Security Services Ltd v Citibank.[209]
[209] [1997] AC 254, 266H-267D, 268A-D, 285F-H.
Defence counsel pointed to the fact that Mr Sebastiano remained in the business for nearly six years and in fact proceeded to renew the Franchise Agreement on 4 August 2014 ‘in the face of their knowledge of the facts giving rise to this claim’.[210] This was done however, on the sensible advice of the accountant Mr Varapodio ‘because without a franchise agreement I had nothing to sell … and they could … come and cease my agreement with them at any stage’.[211] Affirmation under the general law is in any event no defence to claims in damages: Myers v Transpacific Pastoral Co Pty Ltd.[212]
[210] Exhibit P3 Tab 183, Defendant’s written closing paras 96 and 98(c).
[211] T116.4-117.12 Mr Sebastiano.
[212] (1986) ATPR 40 – 673, 47, 423-47, 424.
It is here that the divergent expert evidence of valuation comes into focus. Both witnesses Mr Crase and Mr McPharlin are accountants with wide experience and expertise which cannot be questioned.[213] They are more or less equally experienced in valuing businesses of the present kind.[214] There was nevertheless considerable debate as to who should be accepted as more reliable or accurate.
[213] Exhibit P10 para 3 and Appendix 2 Mr Crase. Exhibit D15 Appendix 6 Mr McPharlin.
[214] T417.29-.37 and T795.27-796.13.
Both Mr Crase and Mr McPharlin approach this issue of valuing the subject business uncontroversially by reference to the future maintainable earnings of the business. The value of the business is calculated by the product of Business Earnings before Interest, Tax, Depreciation and Amortisation (the EBITDA) and then by applying a multiplier reflecting the risks associated with the particular purchase. Mr Crase valued the Flinders Street Funk business at $90,000-$120,000 and estimated capital loss at $48,827 as at 1 July 2009,[215] whereas Mr McPharlin considered the price paid in 2009 of $350,000 was fair and reasonable.[216]
[215] Exhibit P10 paras 1.71 and 5.21, T378.13-.25.
[216] Exhibit D15 paras 3.33-3.45.

There are a number of qualifications to note in respect of the latter opinion. Mr McPharlin did not value the business as such. Rather he compiled an opinion limited by his instructions whether the price was reasonable, which is a different question because it invokes an appraisal of what was reasonable in the prevailing circumstances. Mr McPharlin frankly accepted as much.[217]
[217] T801.9-.29.
He also accepted that standard valuation practice was to include the proprietor’s wage as an expense. He did not accept that principle applied in this case because of the nature of the business, on account of ‘normalisation and adjustments in order to standardise the effort or the economic effort that has been put in by the proprietor’ were appropriate.[218] Since the owner was the operator in this instance, Mr McPharlin effectively disregarded the value of Mr Sebastiano’s labour because otherwise he ‘would be facing the economic cost of the manager’s labour.[219] He accepted that in the normal course of valuation the manger’s wages are included as expenses to be deducted and that there would be a different value if the purchaser was not intending to be an owner/operator.[220]
[218] T803.22-.25.
[219] T802.7-803.25, T804.6-805.35.
[220] T805.30-.35.
It is not apparent that this premise applied to the circumstances of Mr Sebastiano. In the first place he was already in good employ and therefore did not need to purchase a business to secure a job. Moreover, during the course of this franchise he was involved in another similar business leaving his wife to run Funk Flinders Street, so it was not strictly a fixed owner/operator model at all. As noted earlier, Mr Sebastiano was from time to time looking for opportunities in the hospitality industry. He deposed in-chief to having worked at ‘Café Noshery’ in King William Street around November 2010 to February 2011.[221] Under cross-examination it became unclear at first if he actually bought an interest in this other business,[222] which Mr Varapodio said was another business interest or opportunity Mr Sebastiano provided at the time.[223] One way or another it emerged that he did invest $50,000 in Noshery with funds obtained from his mother.[224] This venture was not disputed by Mr Damaskos, who thought it was for a little longer than three months,[225] or by Mrs Damaskos for that matter.[226]
[221] T47.14-.22.
[222] T145.1-.10.
[223] T226.38-227.5, T233.34-234.27.
[224] T267.26-268.3.
[225] T613.33-614.1.
[226] T792.5-.14.
Still further comparable transactions identified by Mr McPharlin occurred in a quite different market and economic conditions to those prevailing in mid-2009. This was at a time when there was considerable business uncertainty in the context of the Global Financial Crisis, which he acknowledged was the case.[227]
[227] T810.10-813.8.
There were in addition a number of shortcomings in the material he was provided with. These include the failure to provide all the financial statements of Flinders Street Funk. He in fact used the Form 2 as the ‘base document’ to annualise the figures.[228] He was not provided with complete financial information as to the sales of the other Funk franchises for comparative purposes either.[229] Even then the materials he did receive:
·contained unexplained differences between the source materials and the primary financial records for the Funk King William store from the tabled figures for the store in his report;[230]
·contained a profit and loss summary for Funk Flinders Street which included figures from the Form 2 with the exception of wages and for which he used an unverified budget adopted by the vendor, rather than wages ‘actually incurred by the vendors in operating the business’;[231]
·led him to remain unaware of the rent concessions or rebates afforded to the plaintiffs which he accepted might ‘slightly distort’ the annualised figures and which required an adjustment which was not made;[232]
·left him unaware of the trading figures with respect to the four Funk stores then in operation, which fell between 30 November 2008 to 30 June 2009 from $618,000 to $558,820 per store, and which Mr McPharlin acknowledged was an issue that ‘may warrant further consideration’.[233]
[228] T813.16-814.29, T815.1-.5.
[229] Exhibit D15 para 3.37, T814.16-825.13.
[230] Exhibit D15 Table 3.37, T823.10-824.32.
[231] T825.14-826.27, Exhibit D15, Appendix 3.
[232] T825.14-826.27.
[233] T830.9-831.22.
For all of the above reasons, the opinion expressed by Mr Crase is preferable to that of Mr McPharlin. This conclusion does not impinge his expertise. It is to acknowledge that Mr McPharlin did not purport to value the business in the first place, that he based his opinion on the fraught owner/operator premise which is not proven to be applicable on the underlying facts and that the materials he relied upon were incomplete or secondary accounting records. Expressed in another way, the findings of fact expressed therein are not capable as a matter of principle and common sense of supporting the owner/operator assumptions premised by Mr McPharlin: Paric v John Holland (Constructions) Pty Ltd.[234]
[234] (1985) 59 ALJR 844, 846.
As mentioned earlier, the opinion of Mr Crase was based on the same ‘future maintainable earnings’ method as that initially accepted by Mr McPharlin. This began with the trading figures for the 2008/2009 financial year, calculating the EBITA, then applying a multiple to derive the nett present value of future profits. As a question of valuation principle Mr Crase accepted that adjustments might be appropriately made for ‘excessive or inadequate remuneration’ of the proprietor so as to duly reflect or normalise the economic labour invested in the business.[235]
[235] T391.2-392.8, T393.36-394.18, T400.2-401.6, T412.20-417.5, T416.35-.36 Mr Crease; T802.2-804.20, Exhibit D15 paras 3.51-3.59, Mr McPharlan.
The difference of expert opinion as to the application of this norm to the facts of the case, largely boils down to the rather generic view of Mr McPharlin that ‘a phenomenon exists in some small businesses that that deduction is effectively not made’.[236] This is opposed to the view of Mr Crase that in the circumstances of this case as it was simply a matter of substituting ‘the manager’s wage for that of the owner …’, there was no need to make an adjustment.[237] That is to say Mr Crase considered there was nothing excessive or inadequate in proprietor remuneration in this instance. There is no evidence suggesting otherwise. The projected personal income supports that view, particularly when compared with Mr Sebastiano’s immediate past income level. And it is a valuation more consistent with that made by Mr Wood in 2011.
[236] T804.18-.20.
[237] T804.18-.20, T417.2-.5.
Conclusion and orders
In light of the primary findings of fact made during the course of these reasons, the plaintiffs have proven misleading and deceptive conduct, in that the defendants misrepresented the Flinders Street Funk café as maintaining average weekly turnover of around $15,000 when it did not, and when there was no reasonable basis for it. Subsidiary claims for the failure to correct this state of affairs when there was a reasonable expectation that the defendants would do so, and in associated mispresentations as to weekly wages levels and as to proposed catering arrangements for SA Water, equally succeed. It is a matter for the plaintiffs whether they wish for further findings to be made under the Misrepresentation Act limb of their claim.
The parties should return to the court for a determination of appropriate consequential remedies. This exercise includes what heads and measures of damages are appropriate, whether alternative remedies are open – such as rescission for instance - and which plaintiff or plaintiffs are entitled to any such orders and against which defendant or defendants. The parties are equally entitled to be heard on issues of interest and costs.

Appendix A
Appendix B