Jospin Pty Ltd v Copulos Venture Capital Pty Ltd

[1994] FCA 47

47       9 9

JUDGMENT No. ........ ........ .. I ........ ....

.1

.!IN THE FEDERAL COURT OF AUSTRALIA	)
1
VICTORIA DISTRICT REGISTRY	1 No VG 66 of 1991
1
GENERAL DIVISION	1

BETWEEN: JOSPIN PTY LTD,

JOHN PASIAS and MARY PASIAS

(Applicants )

(Respondents)

Judse :  Ryan J

Place: Melbourne

Date:  18 February 1994

MINUTE OF ORDERS

THE COURT ORDERS:

1. That there be judgment for the applicants in the sum of

   $255,641 together with interest in the sum of $135,941.

2. That the respondents pay the costs of the applicants including any reserved costs such costs to be taxed in default of agreement.

NOTE :	Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA	)
1
VICTORIA DISTRICT REGISTRY	1  No VG 66 of 1991
1
GENERAL DIVISION	1

BETWEEN: JOSPIN PTY LTD.

JOHN PASIAS and MARY PASIAS

(Applicants)

(Respondents)

Judae : Ryan J

Place: Melbourne

Date:  18 February 1994

REASONS FOR JUDGMENT

The Ollies fast food business ("the Ollies business") comprised a chain of thirty-two restaurant and take-away outlets. Within the chain there were two types of outlets, first, those known as company stores which were owned and operated directly by what I shall call "the Ollies companies".

discussed below, nine of the thirty-two stores were company	Immediately before the sale of the Ollies business which is
stores. The remaining twenty-one stores were conducted under franchise agreements, some of which were in writing and some oral, made between the Ollies organisation and various franchisees.
The phrase "the Ollies companies" is a convenient compendious name for three proprietary companies, Ollies Trolley Fast- Foods Pty Ltd ("Ollies Trolley Fast Foods"), Ollies Family Restaurants Pty Ltd ("Ollies Family Restaurants") and Ollies Resources Pty Ltd ("Ollies Resources"). It is sufficient for present purposes to note that Peter and Maria Copulos were directors of each of the companies and all shares in them were held by Mr and Mrs Copulos either directly or through Copulos Nominees Pty Ltd as trustee for the Peter and Maria Copulos Family Trust. Ollies Trolley Fast Foods was the proprietor of the Ollies business in that it owned all the intellectual property, including several registered trade marks, the goodwill of the business and claimed exclusive rights in various production and control systems utilised by the chain. Ollies Resources under an agreement with Ollies Trolley Fast Foods granted franchises and licences to use the intellectual property and other rights owned by Ollies Trolley Fast Foods. Ollies Family Restaurants operated a number of the retail outlets conducted as company stores and was also a party to various franchise agreements in relation to the Ollies business.
companies, as franchisors, provided support to the various In addition to conducting the company stores, the Ollies
franchisees, particularly by the supply of products, marketing services and advertising. The Ollies companies maintained a warehouse facility in Shepparton which stored printed material, including branded containers, and large quantities of non-perishable items which were sold to the franchisees. Most of the franchised stores -purchased stock from the warehouse and thereby obtained the benefits of the bulk purchasing power of the Ollies group. Each franchise business paid a royalty to Ollies of around 4% and an advertising levy which was solely expended on advertising for the group. The Essendon store, which forms the focus of these proceedings, paid an advertising levy of 3 . 5 % of gross sales and, from 8 December 1987, the royalty was struck at 3% on weekly sales figures below $12,000 but if the sales should be greater than that amount the royalty would be 4 % .
NEGOTIATIONS FOR SALE TO KFC Following preliminary discussions in May 1989, Mr and Mrs Copulos became anxious to sell the Ollies business to Kentucky Fried Chicken Pty Ltd ("KFC"). Negotiations for the sale began in September 1989 and were conducted on behalf of Ollies by Mr Copulos and his solicitor, Mr C J Riordan, and on behalf of KFC, by Mr R J Bothwell and Mr D Wunderlin.
The sale of the Ollies business was, of course, complicated by
continuing obligations owed by the Ollies companies to the the existence of franchises which were subject to extant and
various franchisees. The course which appears to have commended itself to Mr Copulos was to sell the entire business to KFC and for the Ollies stores thereafter to continue as KFC outlets. Initial discussions which Mr Copulos had with KFC were directed to that end. On 19 September 1989 KFC indicated, through Mr Bothwell, that it did not wish to purchase thirteen of the thirty-two stores being those at Bendigo, Wodonga, Dubbo, Wangaratta, Warrnambool, Grafton, Albury, Collingwood, Essendon, Springvale, Melton, Wagga and Mt Gambier. The prospect of retaining some of the company stores or being liable to discharge continuing obligations to a small number of franchisees did not appeal to Mr Copulos who accordingly considered several alternative proposals designed to bring about the transfer of all Ollies Stores to KFC on terms acceptable to that company. One such proposal considered by Mr Copulos involved the purchase by the Ollies companies of some of the franchised stores, including the Essendon franchise, in order to deliver them to KFC as company stores. The delivery cost of the Essendon store was estimated by Ollies to be $200,000. That option was not pursued and Mr Copulos instructed Mr Riordan to draft a letter, to be sent to Mr Bothwell, setting out a revised proposal. That letter, dated 24 September 1989, recites:

"As you are aware, I have urgent and realistic time constraints in these negotiations. In order to expedite discussions, I have carefully considered the difficulties facing KFC and have prepared a proposal, w h ~ c h I believe, provides a practical solution to those problems.

I enclose a Schedule setting out the basis of my proposal and, in
particular:
(a)	The stores to be delivered as company stores;
(b)	The stores to be delivered as franchisee stores;
(c)	The stores to be excluded from the sale.

I make the following comments:

1.     As advised in our discussions on 19 September, of the company stores, I will have to purchase Lismore, Warrnambool, Braybrook, Frankston and Malvern at a total cost of approximately $1,000,000.00.

2.     Essendon haa been included as a franchisee store as I am convinced that it can realistically fit into your plans and there would be significant problems if it were excluded from the sale. Springvale has been included as a company store.

3.     As Benalla, Bendigo and Echuca stores are all operated by the

same franchisee, I have included Echuca as a franchisee rather
than a company store.

4.    The franchisee stores now include Shepparton, which is a most signlfrcant alteration to my previous proposal.

5.     I propose that I will franchise Shepparton, Echuca and Benalla and the current Bendigo W C store, with the Bendigo Ollies to be excluded from the sale and to cease to trade as an Ollies.

I belleve that my involvement with KFC as a franchisee has a

number of advantages, including:

(a) It will assist m our conversion discussions with other franchisees;

(b) It w ~ l l facilatate the delivery of Echuca and Benalla;

(c) The acquasit~on by KFC of an outstanding franchisee;

(d) The Shepparton posrtion will be rationalised to the

sign~ficant advantage of WC.

6.     The Agreement will need to provide an appropriate formula for an alteration of the purchase price to cover the unlikely scenario of any of the nominated franch~sees not being prepared to convert.

7 .     It is fundamental to any proposal that it is in the best anterests of exlsting franchisees that they convert. In this regard, I cons~der that the conversion details suggested by you rn our telephone discussions of 23 September are reasonable save that the term of the KFC franchise must not be less than the unexpired portion of the term of the existing Ollies franchise.

8.    The exclusion of the specified Ollies stores from the sale is on the bas~s discussed with you on 23 September that KFC does not require the Ollies trademarks and name and Ollies would be required to contanue to meet its obligations as franchisor to those stores.

You will appreciate that this proposal incorporates significant alterations to the proposals upon wh~ch our drscussions have been

based to date, particularly an that:
(a)	Shepparton is now included:
(b)	I am prepared to agree to your excluding the nominated stores
and I will accept the responsibilities and liabilities which flow from that exclusion.

I have taken this position because of my pressing time constraints

and in order to offer KFC its preferred "package". Thus, I believe

that negotiations should be able to be concluded urgently.

I would hope that you would now be able to determine a precise offer

conditional only on sighting all relevant financial information and legal documentation. Thrs w ~ l l enable both of us to determine at the earliest possible date whether a sale can be concluded. You will note that the Schedule details budgeted sales figures for each store.

I confirm that at this time all of our discussions are without

prejudice and that any information provided by either party .to the other is provided on a strictly confidential basrs to assist

negot~ations. It is clearly agreed that, if negotiations are- - -

unsuccessful, such information will not be used by either party to

the detriment of the other.

I should add Bob that I appreciate the constructive and forthright

manner in which you have approached our discuaslons and I am

optimistic that negotiations will be successfully completed."

I have not set out in full the schedule to that letter as it

is sufficient to note that fourteen of the stores were to be delivered as company stores, four were to be delivered as franchisees franchised to the Copulos group, nine, including the Essendon store, were to be sold as franchised businesses and six stores were to be excluded. On 28 September 1989, after further discussions, the general terms as set out in the letter of 24 September 1989 were accepted by KFC with a price agreed at $11.675m.

Following the "in principle agreement" reached on 28 September 1989, the Ollies companies and KFC began negotiations on the formal terms of their agreement and the mechanism by which the sale should be effected. A significant complication arose on 17 October 1989 when KFC indicated that it would seek an exclusive licence of the intellectual property rather than a

purchase of the assets comprising the trade marks and other	intellectual property rights. This proposal was strongly
resisted by Ollies, and after further negotiations, KFC agreed on 23 October 1989, that it would purchase all the Ollies assets for the price of $11.675mf provided that all stores were to be included in the sale. This revised proposal formed the basis of the formal agreement which was executed in Sydney on 9 December 1989 with settlement arranged for 24 January 1990. I need not rehearse in detail the terms of that contract. It provided that Ollies agreed to sell to KFC the intellectual property and associated rights in the company stores, including stores to be purchased by Ollies from franchisees prior to settlement, and the interest of Ollies as lessee pursuant to various property leases. Ollies further warranted that it would use its best endeavours to procure the execution, by each of the nominated franchisees, of conversion agreements which provided for the conversion of those Ollies franchises to KFC franchised stores.
The agreement further provided that, if more than two of the Ollies stores were not converted to KFC outlets, then either Ollies or KFC had the right unilaterally to terminate the sale. As well, a price reduction formula was agreed whereby the sum of $257,500 (plus a further amount in respect of company stores) would be deducted from the price payable to Ollies in respect of each store not transferred to KFC. The figure of $257,500 was arrived at after taking into account the cost to KFC of buying out any Ollies franchisee which
might decline to convert. So much is clear from a memorandum, dated 7 November 1989, from Mr Wunderlin to Gavin Hall,
General Manager of Ollies, in which, after reciting the reduction formula, it was observed:

"It's important everyone recognises these are mere insurance policies against non-execution, therefore we should focus our energies on bringing the units across. However, the valuations must minimally cover any buyout provisions which an uncooperative party might require to facilitate an exchange. Further, W C as the purchasor, can't afford to denigrate its financial return, based upon the actual valuat~on. These factors cons~dered, the above "flat" or average valuation genuinely reflects our additive economics."

The agreement also reserved a licence to Ollies to enable it to continue to use the Ollies name for the purpose of honouring its obligations under its franchise agreement with any franchisee who did not agree to convert.

The sale agreement required Ollies to persuade the franchisees to convert to KFC and failure to do so would have serious consequences for Mr Copulos. First, if more than two franchisees declined to become KFC outlets, KFC could resile from the purchase. Not only would loss of the sale be financially detrimental but it would also leave KFC, Ollies' major competitor, in possession of confidential information about the Ollies operation which had been provided to KFC in the course of negotiations. This was made clear to Mr Copulos by Mr Riordan in a letter of 12 October 1989. Second, for each franchise not delivered, the price reduction formula operated to reduce the amount payable to Ollies by $257,500. Third, the Ollies group would have been subject to continuing obligations, pursuant to franchise agreements, to those

been advised, a non-converting franchisee might embark on	franchisees who did not convert. Fourth, as Mr Copulos had
litigation claiming that the dismantling of the Ollies chain was in breach of an implied term of the franchise agreement that the chain would be maintained at a viable level. On this last aspect Mr Copulos was sufficiently concerned to seek advice from Senior Counsel.
The task faced by Ollies in persuading the franchisees to ..
convert was made harder by the decision of M r Copulos, against the advice of Mr Riordan, not to consult the franchisees until after the agreement with KFC had been concluded. Thus, with the exception of some of the franchisees who were relatives of
Mr Copulos, franchisees were not formally told of the sale
until after 9 December 1989. That difficulty assumes significance when it is remembered that Ollies desired to have the franchisees committed to conversion by 10 January 1990 in order for settlement to occur on 24 January 1990.
THE ESSENDON STORE Before turning to negotiations between Ollies and Mr Pasias which led to the Essendon store becoming a KFC outlet, it is necessary to recount some historical and other features peculiar to that store.
By contract for the sale of a business made on 22 September 1986 Ollies Family Restaurants sold to Jospin Pty Ltd ("Jospin") the Ollies business conducted at the corner of Mt
Alexander Road and Winifred Street Essendon ("the Essendon business") together with stock and other assets for a price of
$175,000. Jospin then entered into a lease of the premises and a franchise agreement with Ollies both of which were for a period of ten years.
Directors of Jospin were Mr Pasias, his brother-in-law, M r Chris Pateras, and two other directors. The issued shares in Jospin were held-by M r Pateras as to 50%- and by T.E. and J. --

- l0 -

Pasias Pty Ltd also as to 50%. The shares in the latter company were held in equal portions by Mr Pasias and his mother and father.

It was originally anticipated that Mr Pateras would be responsible for the day to day management of the business and

Mr Pasias, who at all times has been in full time employment

as a chartered accountant, would contribute capital and

accounting assistance.

M r Pateras became dissatisfied with the business in mid-1987

and made arrangements to divest his interests. He resigned as a director of Jospin and assigned his shares to Mr Pasias with effect from 30 June 1987. By agreement dated 1 July 1987 Jospin purported to sell its interest in the Essendon business to John Pasias personally. With the departure of Mr Pateras, Mr Pasias, in September 1987, appointed Mr Ransom, who had previously managed an Ollies store in Ballarat, as manager of the Essendon business. The Essendon business located in Mt

Alexander Road, was in close proximity to two KFC outlets, one	conducted in Keilor Road and the other in Mt Alexander Road.
It is common ground that the Essendon store was in vigorous competition with the two KFC outlets though Mr Pasias maintained in evidence that his store had gained a competitive advantage over KFC because it offered different products and was more attractive to families as an "eat-in" restaurant. In addition to fried chicken, the Essendon- business sold barbecued chicken, potato chips, ice cream and other sundry items. Mr Pasias gave evidence to the effect that during the relevant period: fried chicken comprised 40% of sales of the Essendon store, barbecued chicken 25%, potato chips and salads
25% and ice cream 10%. KFC did not sell barbecued chicken or
ice cream and, according to Mr Pasias, the larger range of products which it offered, was vital to the ability of the Essendon store to compete with KFC.
After Mr Pateras retired, Mr Pasias became responsible for the day-to-day management of the store and, as already noted, employed a full-time manager to assist him. Because of his commitments as a chartered accountant, Mr Pasias could not give substantial attendance at the Essendon store. AS a result the store incurred higher operating costs because of the need to employ a full-time manager and was more than usually dependent on the Ollies group for advice and assistance in running the outlet. Most of the items for sale in the business were purchased directly from Ollies.
directly from suppliers. However, the purchasing terns and Perishable items, like chickens and soft drinks were purchased
prices had been negotiated by Ollies and the Essendon store benefited from the buying power of the Ollies group. Ollies provided management support and an area manager from Ollies regularly visited the Essendon store.
Mr Pasias gave evidence that, by the end of 1989, he regarded
the business as doing reasonably well. He was happy with- the standard of product supplied and the level of service which the store provided. In his view the standard of service and the greater range of products, particularly the availability of barbecued chicken gave the store a competitive advantage over neighbouring KFC outlets.
On figures prepared by Mr Pasias, the Essendon store had a net loss for the financial year ending 30 June 1987 of $15,067. For the following financial years up to that ending 30 June 1991 the net losses were, respectively, $26,376, $28,175, $58,855 and $100,631. Mr Pasias also prepared adjusted profit and loss figures which removed from the amounts just described the expenditure on items which he regarded as not being directly part of the operating costs of the business. On that basis, interest payments associated with the acquisition of the business, lease payments attributed to equipment, legal costs and sundry items, such as additional security, insurance and family wages were excluded from the expenses. On the adjusted figures for the financial years between that ending
achieved in the first three of those years amounting 30 June 1987 and that ending 30 June 1991 profits were
respectively to $28,197, $26,702 and $18,046. A similar adjustment disclosed for the final two years of the period losses of $16,148 and $64,073.
Whether or not the adjusted figures are regarded as a better reflection of the underlying strength of the business, it is clear that from 1987 the business was under considerable financial strain. By December 1987 Mr Pasias had expressed concern directly to Mr Copulos and had adverted to the impact on the costs of the business of his, Pasias', being an absentee operator. Those discussions elicited the following response from Mr Copulos in a letter dated 8 December 1987:

"In vlew of your difficulties with your partner and related
management problems, we have reviewed your total situation.

Our overriding concern is that you have adequate profitability whilst maintaining high standards of product cleanliness and staffing. To ensure the above, we are prepared to do the following:

1.    Nalntain your advertisrng levy at the present 3.5% of gross sales.

2.     Reduce the royalties payable to 3% on any weekly sales figures below $12,000. If sales exceed $12,000 the royalty will revert to 4%.

3.     Narntarn your present rental at $4165.48 per month and forego any adjustment based on 11% of sales. We suggest this rental figure be increased annually by 7.5%, wrth the first increase beang January 1, 1989. The immediate effect of this will be to reduce your rentalto approximately 9% of sales this year.

4.    Further to the meeting held on Friday December 4, we undertake to provide operational supervision.

The net benefit to you of the above royalties and rental reductions will approximate $16,000 on an annual basis."

Towards the end of 1988 the level of trading losses appears to have remained a concern which Mr Pasias raised with a Mr

Panazzo, an accountant for Ollies.

In my view, by the end of 1987, Mr Pasias may well have been guardedly optimistic about the future of the business. However, that optimism was founded on his belief that he could contain costs and compete effectively with KFC by maintaining an improved level of service and a wider range of products. Nevertheless, his ability to contain costs was limited by the need for a salaried manager as he, Pasias, concededly had no intention of making a full-time commitment to the conduct of the business. Accordingly, any view of the success of the store must have been based upon the continuing support of the Ollies group which Mr Copulos undertook to give in his letter of 8 December 1987.

THE CONVERSION OF THE ESSENDON BUSINESS
In December 1989 Mr Copulos informed M r Pasias of his
intention to sell the Ollies business to KFC. That
conversation constituted the only relevant communication
between Mr Copulos and Mr Pasias before the conversion of the
Essendon store to a KFC outlet. In paragraph 18 of the
amended statement of claim it is pleaded in relation to that
conversation:

"In December 1989 the Respondents lnformed the Applicants that Ollies Fast Foods and Ollies Resources intended to sell Fast Foods

undertaking and Resources undertaking to Kentucky Fried Chicken Pty

Ltd ("Kentucky Fried Chicken").

The information was oral and constituted by a telephone conversation between the second applicant and Peter Copulos on behalf of the Respondents In December 1989 the substance of which was as alleged. The second Applicant lnqulred as to the reason for the proposed sale of Fast Foods Undertaking and Resources Undertaking. Peter Copulos said in substance and to the effect that the proposed sale would be

Copulos said that most other franchisees had been informed of the	for the benefit of everyone concerned including franchisees. Peter
proposed sale and had greeted the news thereof favourably. Peter Copulos asked the second Applicant for his immediate response. The second Applicant said he would not commlt himself or make a declsion until he received some lnformation upon which he could make a
decision. Peter Copulos said that Gavin Hall of the Respondents was
handling all of the details of the proposed sale. Peter Copulos said that Gavin Ball was more familiar with specific terms and conditions of the sale and how franchisees would be affected. Peter Copulos said that Gavin Hall would contact the second Applicant shortly to provide further details for the second Applicant's consideration."

To that allegation it is pleaded in paragraph 18 of the respondents' amended defence:

"They admit that in December 1989 the respondents informed the

applicants that Ollies Fast Foods and Ollies Resources ~ntended to sell Ollies Trolley Fast Foods undertaking and resources undertakLng to Kentucky Fried Chicken Pty Ltd.

PARTICULARS

Except for the allegation that Peter Copulos requested an immediate

response, the respondents agree with the particulars in paragraph 2

of the applicants' Further and Better Particulars of Amended

Statement of Claim."

The allegation in paragraph 18 of the amended statement of claim was made out by the admission in the amended defence and by the evidence given by Mr Pasias. Mr Pasias amplified the conversation during his evidence by saying that he voiced his reluctance to express an opinion as to his desire to convert to KFC in the absence of further detailed information and that the existing competition with the two KFC stores located near the Essendon business was a problem for Mr Pasias that would continue regardless of whether he converted or not. I accept the evidence of Mr Pasias on this point as being an accurate account of his conversation with Mr Copulos. Mr Copulos was not called to give evidence on the trial of this application.

After that conversation with Mr Copulos, Mr Pasias spoke on

general manager of the Ollies group. It was allegedly during	several occasions with Mr Hall who was, at that time, the
these conversations that misrepresentations were made to Mr
Pasias which induced him to convert the Essendon store to a
KFC outlet. The respondents have denied making any
misrepresentations and it is necessary to attempt to reconcile
the divergent accounts given by Mr Pasias and Mr Hall of their
conversations. In that task I have borne in mind the
imperatives present to the minds of each participant in the
conversations. Mr Hall was aware of the need to persuade .
franchisees to convert to KFC within a very short space of time. He was aware of the potential detriment to the Ollies organisation in the event of a failure by any franchisee to convert. For Mr Pasias' part he was made aware from at least 12 December 1989 of a real possibility that the Ollies chain would be disbanded and reduced to a mere handful of outlets. As the first conversation with Mr Copulos made clear, Mr Pasias was particularly concerned about the immediate impact upon costs and product range which conversion to a KFC outlet would have on the Essendon store.
The first conversation between Mr Pasias and Mr Hall occurred a few days after that between Mr Pasias and Mr Copulos to which I have just referred. I find that Mr Pasias asked Mr Hall what had been the general reaction of the franchisees to the sale proposal to which Mr Hall replied that the franchisees whom he had contacted were excited about the prospect and in particular the beneficial effect of removing
benefits flowing from the removal of competition would be less direct competition. Mr Pasias suggested to Mr Hall that the in his case because of the existing local competition from the nearby KFC stores.
As well as pointing to the benefits of conversion, Mr Hall made it clear in the first conversation that the sale would have a marked deleterious effect on the level of support, including warehousing, marketing and area management advice that Ollies would-be able to provide in the future to any Ollies franchisee who elected not to become a W C outlet.
On both accounts the extent of the continuing obligations to non-converting franchisees was a topic of discussion in the first conversation. Mr Pasias specifically asserted that Mr Hall told him that Ollies had spent two days in Sydney obtaining an opinion to the effect that there were no legal obligations to franchisees under any franchise agreement. Mr Hall denied making this statement. If it was made, the statement was false. Mr Hall had earlier been made aware by
Mr Riordan that there would be continuing obligations to non-
converting franchisees. Mr Hall had in fact been to Sydney for the signing of the contract with KFC on 9 December 1989. As well, he, Mr Hall, was aware that certain advice had been received from Senior Counsel in relation to the Ollies franchise agreements. Dr Pannam Q.C., for the applicants, submitted that Mr Pasias' knowledge of these two matters
the course of the first conversation. I have not been greatly suggested that he had received the information from Mr Hall in
assisted determining which version of the conversation should be accepted by speculation as to how Mr Pasias came into possession of this information. Each of Mr Pasias and Mr Hall gave a somewhat structured account of the conversation, though obviously to different effect, during the course of his evidence. My impression gained from the evidence of both of them is that the conversation covered a range of matters in a fairly general manner. I accept that Mr Hall made it clear to
Mr Pasias that the sale would have a very grave impact upon
non-converting franchisees. Whether that had been the subject of legal advice obtained by Ollies, if such advice had been obtained, does not seem to have been significant in the deliberations of Mr Pasias. In explanation of his own failure to seek legal advice on this issue, Mr Pasias observed:

"So I was reaeonably happy that they could do whatever they wanted

under the franchise agreement. I also realised that it was going to

be very d~fficult for me to run the business without the support that

they had been providing previously. But by the same token, I was rather concerned about KFC because I had to give up a large share of my product l~ne, being barbecued chicken and ice cream. I knew that they were already strongly represented in the area, and there was going to be costs associated with the transfer, yet I didn't know what those costs were going to be."

That response suggests that Mr Pasias was left with the impression that he would incur a significant detriment, including an increase in costs, in remaining as an Ollies franchisee after the sale of the bulk of the chain to KFC. That assessment by Mr Pasias does not seem to have been significantly affected by any comments made by M r Hall as to the legal status, after the sale, of the obligations under the

franchises. Clearly, commercial considerations rather than

legal obligations weighed primarily with Mr Pasias at that

time.

On the costs of conversion Mr Hall responded to a question from Mr Pasias by saying, in effect, that costs would not be known until an individual assessment of the Ollies stores had been undertaken by KFC. That was to occur in December 1989

and January 1990. M r Pasias was advised that his decision had

to be made by 24 January 1990.
A few days later Mr Hall again telephoned Mr Pasias to advise

him that KFC was holding an "information afternoon" at the Hilton Hotel on 21 December 1989 for Ollies' franchisees who were being given the opportunity to convert to KFC franchises. In the course of that conversation Mr Hall indicated to Mr Pasias that unless he, Pasias, were to give a commitment to convert to KFC, he could not participate in the function because it would involve the disclosure of confidential information about the conduct of KFC franchises and their financial performance.

Mr Pasias replied that he saw considerable problems in conducting a KFC outlet from his premises given the close proximity of competing KFC stores and his inability, after conversion, to sell ice cream and barbecued chicken. Mr Hall said that KFC had strong market power and an efficient marketing operation, and that its outlets traded at significantly higher margins and levels than Mr Pasias' Ollies franchise. He cited an example of two KFC outlets in New

both trading successfully. Accordingly, he suggested, the	South Wales located directly opposite each other which were
existing KFC stores would not cause Mr Pasias any difficulty if he were to trade as a KFC outlet.
Mr Hall also asserted that KFC had done its homework and would
not allow the Essendon Ollies store to convert unless it thought it likely to succeed. KFC, he said, did not want a non-performing store on its list.
Mr Pasias then asked whether his Essendon store, was or was not, one of the Ollies' chain which KFC originally wanted. Mr Hall replied that he could not disclose that because it went to a confidential aspect of the negotiations between Ollies and KFC. Mr Pasias then asked whether KFC and Ollies were to provide any written information to assist him in deciding whether or not to convert. Mr Hall replied that there would be no written information and Mr Pasias would have to make his decision on the basis of their oral discussions.
Shortly before 21 December 1989, Mr Hall advised Mr Pasias that KFC had relaxed it restriction on participation in the information afternoon and that he and his wife could now attend. In the course of further discussion, Mr Hall said that KFC had a narrower menu line than Ollies, and by concentrating on a few products, achieved high volumes of sales and large economies of scale. Accordingly, he said, all KFC stores had achieved significantly higher gross profits than the Pasias's Essendon store.
Mr and Mrs Pasias attended the information afternoon on 21
December 1989. In the course of it, in company with other
Ollies f ranchisees , they were given oral and video presentations of aspects of KFCrs operation and sales techniques. They were then taken by bus to an existing KFC outlet and returned for dinner at the Hilton Hotel.
Mr Pasias gave evidence of several conversations with Mr Hall after the Hilton presentation. Mr Pasias said that he told Mr Hall that he was still disturbed by the lack of specific information and that Mr Hall replied that KFC stores had higher gross profits, higher sales levels and lower operating costs due to KFC's bulk purchasing power and its narrower product line. According to Mr Pasias, I4r Hall then concluded the conversation by stating that the matter was urgent and that should Mr Pasias have any queries as to the details of the draft documents, which had been received by Mr Pasias under cover of Mr Riordan's letter of 14 December 1989, he should direct them to Mr Riordan personally.
On the evidence of Mr Pasias, following a conversation with Mr Riordan on 3 January 1990, there was a further conversation with Mr Hall in which he advised Mr Hall of a continuing problem with the names of the parties to the agreement. That arose from the purported sale agreement between Jospin and Mr Pasias in January 1987.
Mr Hall then allegedly told Mr Pasias that all the Ollies stores would benefit from association with KFC and that the
Essendon store would benefit significantly from conversion. KFC was said to be developing a barbecued chicken line so that
M r Pasias should not be concerned about giving up that
product. According to Mr Pasias, Mr Hall again refused to say whether the Essendon store had been one of those originally wanted by KFC.
The conversation after 3 January 1990 continued with Mr Hall saying that there was nobody else to whom Mr Pasias could speak to obtain further information. M r Hall denied the truth of an article in the "Financial Review" to the effect that the sale was dependent upon the agreement of all franchisees. After saying that all franchisees, except for that at Werribee, had agreed to convert, Mr Hall reiterated the urgency of the situation.
Mr Pasias said that he then discussed the matter again with
his wife and telephoned Mr Hall a day or two later to request two specific items of information which, he said, were crucial to the decision to convert. Those were the effect on the turnover of the Essendon store after conversion and the specific costs which would be incurred in converting to WC.
Mr Pasias then said that following that conversation he
received a facsimile transmission dated 10 January 1990 which dealt with the cost of conversion. That had a cover sheet stating that the fax was directed to the attention of John
Pasias, sent by Gavin Hall, and concerned the "equipment schedule as required". The copy letter sent by fax was from L
A Verdon, Director-Finance Administration of KFC which observed that an equipment review of the Essendon store had been completed and enclosed a schedule of equipment required for conversion together with an estimate of costs. According to Mr Pasias, on the day after he received that fax, he again spoke with M r Hall who told him that he, Mr Hall, had received from KFC management information that stores converting to KFC outlets could expect an increased turnover of between 20 and 100%. Mr Hall then emphasised the increase in turnover and advised that the costs of conversion were not large given the benefits that would accrue to a converting store.
Following that conversation with M r Hall, which, on the evidence of Mr Pasias must have occurred on 11 January 1990,
M r Pasias and his wife agreed to convert whereupon the Deed of
Conversion was executed.
EVIDENTIARY RULING
In the course of his evidence, another franchisee, Mr Siperki, called by the applicants made reference to a statement allegedly made to him by Mr Copulos to the effect that upon conversion of his five Ollies stores to KFC outlets he could expect an average increase in turnover of between 30 and 35 to 100 per cent ("the Copulos representation").
Mr OrCallaghan QC, who appeared with Mr Collins for the
grounds of relevance. Dr Pannam QC, who appeared with Mr respondents, objected to the admission of this evidence on
Rosenberg for the applicants, contended in reply that the evidence was admissible because of its similarity to the representation allegedly made by Mr Hall to Mr Pasias that upon conversion to KFC outlets Ollies stores could expect increases in turnover of between 20 and 100 per cent ("the Hall representation"). I permitted evidence of the Copulos representation to be led in chief, after which I heard argument as to its admissibility. I ruled the evidence inadmissible indicating that reasons for my ruling would be set out, as they now are in my reasons for judgment.
M r OrCallaghan contended that the evidence of the Copulos
representation ought not to be admitted because it was insufficiently similar to the Hall representation.
Dr Pannam argued that evidence of the Copulos representation ought to be admitted because the fact of such a representation would make it more probable than not that the Hall representation had been made.
The admissibility of so-called "similar fact" evidence in civil cases has been treated extensively by this Court in a series of recent decisions commencing with the judgment of
Northrop J in Mister Figgins Pty Ltd v Centrepoint Freeholds
Pty Ltd (1981) 36 ALR 23 and concluding with the judgment of
Gummow J in D F Lyons Pty Ltd v Commonwealth Bank of Australia
(1991) 100 ALR 468.
In the latter case, Gummow J outlined clearly the principles governing admissibility of similar fact evidence. His Honour said at 476:

"... the first question to be asked when it is sought to draw any

particular case within this univeree of discourse is to ask when "facts" are to be treated as "similar". This is so whether or not it is then said that there are striking similarities between those facts or any underlying unaty between them. The issues that are involved were analysed nearly 60 years ago by Professor Julius Stone in his artlcle "The Rule of Exclusion of Similar Fact Evidence: England". It was this article to which Evatt J paid close regard in -his

.-

judgment in Martin v Osborne (1936) 55 CLR 367.

The learned author

pointed out that the determination of similar~tiea is essentially a process of class~fication, and that any particular inquiry must be preceded by an ascertainment of the significant features of the class under which a given fact is to be subsumed. He perceived two meanings of the term "similarity". First, in the wider sense and the popular aense, a fact is similar to another whenever the two possess a common characteristic; but that common characteristic may be insufficient to render the first fact relevant in the legal sense as proof of the other. Secondly, in the narrower sense, a fact is similar to another only when the common characteristic is the significant one for the purpose of the inquiry at hand.

If facts similar, in the wider understanding, to the fact in issue are irrelevant Ln the legal sense, they are inadmissible for that reason and there is no occasion to deal with the restrictions imposed by the "sim~lar fact" doctrme. As will become apparent, in my view the present LS such a case. Facts smilar, in the narrow meaning, to the fact in issue will be relevant thereto in the legal aense; it is only when this kind of relevance has been found that the question arises as to whether such smilar facts, thoush relevant, are not admissible, because of the operation of che exclusionary rule or discretion restricting the admissibility of "similar fact" evidence

Applying his Honour's approach, it is necessary to assess first the degree and quality of similarity between the Copulos and Hall representations. Mr O'Callaghan highlighted four factual dissimilarities. First, the representations were made by different persons and heard by different persons. Secondly, the Copulos representation was made in the context of the proposed conversion to KFC outlets of Mr Siperkits five Ollies stores, whereas the Hall representation was allegedly

made to Mr Pasias who had only one outlet. Thirdly, the range

of percentages differed from between 20 and 100 per cent on the one hand, and between 30 and 35 to 100 per cent on the other. Finally, Mr OrCallaghan submitted that the Hall representation was said to have been based on information provided by KFC management, while the Copulos representation was not claimed to have any similar basis in the KFC organisation.

In reply, Dr Pannarn argued that it could be inferred that both representations originated from the W C organisation and that, as both representations had been made before conversion of any Ollies stores to KFC outlets, they were part of a pattern of conduct in which officers or employees of Ollies committed themselves to predictions of increased turnover for Ollies franchisees who elected to convert to KFC.

In the same way that similarities may be significant or insignificant, so too may dissimilarities be significant or insignificant for the purpose of determining admissibility. Where dissimilarities are irrelevant in a legal sense, they cannot be used to negate relevant similarities or to strengthen relevant dissimilarities. I consider the second dissimilarity referred to by Mr O'Callaghan to be of this character. Simply, this is because the probative force which the applicants attribute to the Copulos representation is that it makes it more probable that the Hall representation was made and was made at the time alleged. The fact that Mr

whereas Mr Pasias' franchise was confined to one outlet is	Siperki held Ollies franchisees in respect of several stores
therefore not significant as a measure of the legal relevance of the Copulos representation.
The other dissimilarities referred to by Mr O'Callaghan are not, however, of the same character. Each is relevant in a legal sense because it detracts from the alleged probative force of the Copulos representation. The fact that Mr... Copulos made a representation to Mr Siperki that turnover would increase by between 30 and 35 to 100 per cent, does not permit the inference on the balance of probabilities that Mr Hall made a representation to Mr Pasias that turnover would increase by between 20 and 100 per cent. Although it is true that a relevant similarity between the representations would be established if it could be shown that the Copulos representation originated with KFC management, a matter on which I do not think it necessary to express an opinion, the relevance of such a similarity would not establish the degree of legal similarity between the representations viewed as a whole which would be necessary to render the Copulos representation legally relevant and therefore admissible.
Accordingly, I ruled that the evidence of the Copulos representation was not admissible. Even if I was wrong in this view, and the Copulos representation was technically admissible, I was persuaded that this was an appropriate case for the exercise of the discretion to refuse to receive the
evidence. If the Copulos representation had been admitted, further witnesses would necessarily have been called by the
respondent and the case would have been significantly prolonged by the exploration of side issues which, in the end, as I have already indicated, could provide no substantial assistance in resolving the ultimate question of whether the
Hall representation had actually been made; (see D F Lyons v
Commonwealth Bank ( supra) at 4 7 8 ) .
WERE THE HALL REPRESENTATIONS MADE?
Before turning to some specific matters raised in the account !
given by Mr Hall, it is necessary to comment briefly about the

I

way Mr Hall presented his role in the conversion negotiations.	I - I
Mr Hall tended to preface much of his evidence with the caveat	1
that he was not responsible for any detailed negotiations with
!I
the franchisees and that this was the preserve of Mr Copulos.
* _
He explained his role as that of the person responsible for	, ,
the organization of the company stores, and administering	t
i !
matters of detail like planning and health permits.	He stated
that he was under strict instructions to refer any questions	r
from franchisees directly to !4r Copulos, particularly if any	;
8 :
, ,
difficulties arose in the course of his dealings with any
franchisee.	L 1.
That account is, in my view, inconsistent with the suggestion by Mr Copulos that Mr Pasias should contact Mr Hall for details of the proposed conversion, particularly as Mr Copulos had sought inclusion of the Essendon store in the conversion
programme because there would, in his view, be significant	problems if it were excluded. Given the course of
negotiations between Ollies and Mr Pasias, it is, I consider, likely that Mr Hall was primarily responsible for providing details to Mr Pasias to persuade him to convert.
4.
Though not the subject of express concessions, there seems
c -
little disparity between the respective accounts of the

earlier conversations. between Mr Hall and. Mr Pasias. The -A. ,

general tenor of the evidence was to the effect that non- converting stores would face serious difficulties in continuing as Ollies outlets after the sale to KFC. Mr Pasias was clearly in no doubt that those difficulties would be serious. Mr Hall was circumspect in his evidence as to how he conveyed to Mr Pasias the advantages to him of conversion. However, I find that Mr Hall told Mr Pasias that Ollies expected that all franchisees would benefit from increased turnover and that Mr Pasias could expect to share in that benefit if he were to convert. Mr Hall was of the view that KFC had higher gross profits and, doubtless, conveyed that view to Mr Pasias.

Differences in the respective accounts emerge in the evidence of the conversations in early January 1990. The evidence of

Mr Hall was fairly tentative on the specific events occurring

up to 10 January 1990. He did recall a telephone conversation with Mr Pasias during which M r Riordan was present in Mr Hall's office. Mr Hall said his own conversation was brief but remembered Mr Riordan commenting that Mr Pasias had told him that he, Pasias, was happy to go along with Copulos. From

the evidence of Mr Riordan that conversation took place on 10 January 1990. The clear impression which Mr Hall sought to convey was that by that time Mr Pasias had made up his mind to convert to KFC.

To determine the sequence of events in early January 1990, it is necessary to refer to the evidence of Mr Riordan. His account was given with the assistance of diary notes and records of conversations kept by him for the purposes of preparing bill of costs.

I accept that the first conversation in 1990 between Mr Pasias

and Mr Riordan occurred on 3 January 1990. According to Mr Pasias, during that conversation he told Mr Riordan, that he had not yet looked at the documents. In response to Mr Riordan's question as to whether he had consulted a solicitor Mr Pasias asked whether there would be any opportunity to change the documents and, upon Mr Riordan's indicating that there would be no such opportunity, Mr Pasias said that he felt no need to consult a solicitor. Mr Pasias also said that he enquired generally as to how the conversion was going to which Mr Riordan replied that he had commitments or documents or both from all franchisees except Werribee, Melton and Essendon.

M r Riordan's account of the conversation is somewhat

not consult a solicitor because he felt comfortable with the	different. On his evidence, Mr Pasias intimated that he would
documents. According to Mr Riordan, Mr Pasias raised some minor questions as to the meaning of a restraint clause, the liability for legal costs and the need to change the documents so as to replace Jospin as franchisee with Mr and Mrs Pasias personally. The possibility of a head lease was also briefly discussed. Mr Riordan denied that he told Mr Pasias that they had commitments or documents or both from all the stores except the three mentioned above.
I find that, by 3 January 1990, the extent to which M r Pasias had considered the prospect of converting his store to a KFC outlet was significantly greater than his evidence would suggest. He had, I believe, examined the documents and given consideration to amending them in order to record himself and his wife as franchisees. I also find that, by 3 January 1990, Mr Pasias had given very serious consideration to conversion. In response to Mr Pasias' request to change the names in the heading of the franchise documents, Mr Riordan obtained instructions from Mr Duncan Makeig of KFC and, on 5 January 1990, prepared and forwarded replacement pages to reflect that change.
Mr Riordan's record of the conversation confirms what Mr Pasias said he raised as general queries. Mr Riordan conceded that Mr Pasias did not, on 3 January 1990, expressly state that he had made a decision to become a KFC outlet.
Mr Riordan also gave evidence assisted by contemporaneous notes, of the telephone conversation with Mr Pasias which
occurred in the office of Mr Hall on 10 January 1990. On Mr Riordan's account of that conversation, he recounted that Mr Pasias told him that the documents had been organised and that he, Pasias, would get Mr Pateras to sign them and forward them by courier the following day, that is, 11 January 1990. Mr Riordan then stated that Mr Pasias asked him how the negotiations with the other franchisees were proceeding to which Mr Riordan replied that "things were going OK". On Mr Riordan's account, he was reluctant to debate the issue further with Mr Pasias who then stressed that he would not cause problems because Copulos had been good to him and that after such a long association he would be happy to help Mr
Copulos .
Given the differing accounts provided by Mr Pasias on one hand and Mr Hall and Mr Riordan on the other, it is difficult to make a definitive finding as to the state of mind of Mr Pasias on 10 January 1990. The critical question, of course, is whether he had by then decided to convert his store to a KFC outlet. In my view, the key to resolving the conflict on the evidence is supplied extrinsically by the facsimile transmission of 10 January 1990. That fax was, according to
M r Pasias, received by him after a conversation in which he
told Mr Hall that he required two pieces of information before he could make his decision. The fax of 10 January 1990 is a standard letter sent by KFC to each of the franchised stores and followed a review of the equipment held in each of the
stores. Those standard letters were prepared by KFC and signed by Mr L Verdon. As prepared, each letter enclosed two schedules: first, a PAR register system cost estimate and, second, an equipment requirement schedule. The former document set out the approximate costing for cash registers compatible with the KFC system. The second schedule to the letter set out the equipment requirements for each store with an estimate of the item cost and was based upon the individual requirements of each store. The information contained in the letter was clearly apt to answer the enquiry which Mr Pasias said that he made as to the cost of conversion. The letter was received by Mr Pasias by facsimile transmission on 10 January 1990 though without the former document. Mr Hall conceded that the fax had been sent under his direction but could not recall the circumstances in which it went to Mr Pasias. Nor could he recall any reason why the cost estimates had not been sent at the same time. Mr Riordan, who gave evidence that he spoke to both Mr Hall and Mr Pasias on 10 January 1990, was unaware that the facsimile had been sent.
It appears that Mr David Ballesty of KFC sent a fax to Mr Hall on 10 January 1990, the cover sheet of which recited:

"As discussed with Adrian Holness, please find attached equipment
requirement lists for the Helton and Essendon Franchrsees.

Covering letters for all Franchisees will be forwarded tonight to reach Shepparton tomorrow morning."

That fax from Mr Ballesty enclosed the letter and equipment	schedule which Mr Hall then arranged to be faxed to Mr Pasias
on 10 January. Mr Hall could not recall the circumstances in which he received Mr Ballesty's fax. The receipt of that fax is consistent with the evidence of MI Pasias that he required certain information before making a decision whether to convert to a KFC outlet. Mr Hall could not explain why the Essendon and Melton costing analysis had been provided before the provision of information to other franchisees. One inference which is open is that they were provided in response to a request which was regarded as sufficiently important to warrant special attention to the Essendon and Melton stores. That would be consistent with the evidence of Mr Pasias that his decision on whether to convert still hung in the balance at least before the receipt of the facsimile transmission on the afternoon of 10 January 1990.
In my view, Mr Hall was clearly worried on 10 January 1990 that Mr Pasias might not agree to convert. By contrast with the very positive attitude which he displayed to Mr Riordan, Mr Pasias tended to vacillate in his dealings with Mr Hall. I find that Mr Hall forwarded the fax of 10 January in response to a request for specific information by Mr Pasias. I also accept the account of Mr Pasias that Mr Hall followed this request with a telephone conversation on 11 January 1990 in which he told Mr Pasias that stores which converted to KFC outlets could expect an increased turnover of between 20% and 100%.
According to Mr Pasias, after Mr Hall told him that converting stores could expect an increase in turnover between 20% and
loo%, Mr Pasias asked where the Essendon store would fit within that range. M r Hall allegedly replied that he did not have that information but that with the increased volume of sales expected after conversion the reduction in product range would not create any problem. Mr Hall further said that the cost conversion would not be large and a schedule of required equipment and its cost would be provided.
Mr Pasias said that following this discussion he spoke with his wife and they made some calculations based on the figures given to him of an expected increase in turnover of 20% and that, further, after considering all the information which had been provided, including the potential for increased gross profit, higher sales levels and the problems of running an Ollies store without the previous level of support, he and his wife then elected to execute the documents.
In my view, in the telephone conversation between Mr Hall and
Mr Pasias, which I accept occurred soon after the receipt of
the facsimile transmission of 10 January 1993, there were statements as to the likely impact of the conversion on turnover which were false and misleading. I find that Mr Hall made these statements to induce Mr and Mrs Pasias to convert to a KFC outlet and bring to an end Mr Pasias' earlier vacillation. Mr Hall's representations were the catalyst for
Mr Pasias' decision to convert and were relied on by Mr Pasias in agreeing to execute the conversion documents when he did.
It was the conversation between Mr Hall and Mr Pasias on or about 11 January 1990 that founds, in my opinion, the breach of s.52 of the Trade Practices Act ("the Act") for which the applicants contend.
DAMAGES
In light of my finding that the respondent, through Mr Hall, engaged in misleading conduct in contravention of s.52 of the Act it is necessary to determine whether damages are recoverable, and if so, in what amount.
Section 82 of the Act which provides for recovery of damages in respect of conduct contravening s.52 relevantly stipulates:

"82. (1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provrsron of Part IV or V may recover the amount of the loss or damage by action against that

other person or agarnst any person ~nvolved in the contravention."

The measure of damages generally applicable to cause of action for contravention of s.52 based upon a misrepresentation is that in tort. That measure is, I consider, appropriate in the present case. The object of an award of damages in tort is to place the applicants in the position in which they would have been had the contravening conduct not occurred. That formulation requires the identification of a sum equating with the prejudice and disadvantage the applicants have suffered by reason of having altered their position under the inducement

to what the applicants would have done had they not relied	of the misleading conduct. To determine the prejudice sustained by the applicants, the Court must make findings as
upon the misrepresentations.
The evidence-in-chief of M r Pasias which bears upon this question is equivocal. He stated that if the misrepresentation on which he relied had not been made he would have had to continue trading as an Ollies store and then consider what alternative courses of action were open to him. Assuming that he had not been persuaded in January 1990 to convert to a KFC outlet, financial pressures on the business as a continuing Ollies outlet would have intensified. Mr Pasias must have suspected that only one or two Ollies stores would not go over to KFC and that they, accordingly, would suffer from a lack of continuing promotion and warehouse support. The demand upon Mr Pasias' time would have correspondingly increased. From January 1990 sales of the Essendon business were dropping which Mr Pasias attributed to the cessation of promotion by Ollies. That must have brought home to him the difficulties inherent in continuing as an Ollies store. On any view of the figures of the Essendon business, the trading levels should have given rise to serious concern for which there were no foreseeable prospects of alleviation. I do not accept that M r Pasias would have traded as an Ollie's store for any extended period after January 1990.
In my view, the two alternative courses that were open Mr
Pasias were to defer conversion for a short time with a view to converting on more favourable terms or, to try to sell the
business as a going concern. In respect of the former alternative, I accept the evidence of Mr Pasias that he would not have converted unless he had obtained some assurances as to the cost of conversion and the benefit of increased turnover. The determination of the respondents not to make full disclosure to its franchisees of the terms and conditions of the KFC buyout makes it unlikely that a full and accurate appreciation of the situation would have been provided to Mr Pasias in or about February 1990.
The applicants contend that they were denied the opportunity of selling the business to M r Copulos or a related interest. The lost opportunity of entering into a contract as a result of reliance on a misrepresentation will sound in damages in an action brought for contravention of s.52. Support for that proposition may be found in the joint judgment of Mason, Wilson and Dawson JJ in G a t e s v C i t y I lutual L i f e A s s u r a n c e
S o c i e t y L t d (1985) 160 CLR at 13 where their Honours observed:

"Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, at is necessary to determine what the pla~ntiff would have done had he not relied on the representation. If that reliance has deprived him of the opportunity of enterang rnto a different contract for the purchase of goods on which he would have made a profit then he may recover that profrt on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation. This may well be 80 if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed: cf Esso Petroleum CO Ltd v Mardon [l9761 QB 801 at pp 820- 821, 828-829; Doyle v Olby (Ironmongers) Ltd [l9691 2 QB at p 167. The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation. In this respect the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could and would have entered into the different

contract."

To that passage may be added the qualification placed on the

phrase "expectation damages" in Commonwealth v Amann A v i a t i o n

(1991) 174 CLR 64.

As the passage quoted from the judgment in Gates makes clear, it is for the applicants to establish that, of the alternatives open to them, they would have entered into a contract for the sale of the business. In February 1990 Mr Pasias had a discussion with Mr G Koroneas who held the franchise of an Ollies store in Melton. He was informed that the Melton franchisee had refused to convert and Mr Copulos had purchased the business for $350,000. In evidence-in-chief

Mr Pasias gave the impression that in early 1990 he would have

regarded the Essendon and Melton stores as being comparable. In light of the information conveyed by Mr Koroneas, Mr Pasias stated he would not have sold the business for a figure less than that obtained for the Melton franchise. There is no suggestion that Mr Pasias considered that there would be any purchaser of the business other than Mr Copulos or some purchaser in the same interest.

The evidence from M r Pasias is, as I have mentioned, equivocal as to whether he would have initiated negotiations for the sale of the business. Support for the proposition that he would done so may be found in the fact that he was aware of the Melton sale. However, the circumstances of the Melton

of Mr Koroneas, the Melton franchisees had no intention of	franchisee were somewhat different. According to the evidence
converting and posed a clear danger to the whole conversion arrangement. Further, the evidence suggests the turnover in the Melton business to have been substantially greater than that of Essendon in 1986 and 1987 but that after that date trade began to fall as a result of a lack of interest in the business from M r Koroneas and his brother. In order to obtain leverage in the bargaining process, solicitors were retained-
by the Melton franchisees and it was made clear to Mr Copulos that if they were not bought out they would resort to legal action to frustrate the KFC acquisition. That position may be contrasted with that of the Essendon franchise where Mr Pasias had, on several occasions, expressed his willingness to co- operate with Mr Copulos.
The other possibility was for Mr Copulos to initiate the sale. Clearly Mr Copulos had an interest in purchasing the Essendon business because of the terms of the sale to KFC which required conversion of all but two stores. However, as events transpired KFC did not terminate the agreement despite the fact that Melton, Werribee and Collingwood had not been delivered at settlement. Melton was ultimately sold to Copulos and resold as a KFC store. The Werribee franchisee at first refused to convert but later did so after obtaining an accommodation in relation to leasing arrangements. The Collingwood Ollies store was converted after a change in franchisee. Although KFC did agree to complete the
been a continuing thorn in Mr Copulos' side. I am satisfied transaction the unresolved difficulty with Essendon would have
on the balance of probabilities, that in the absence of information which Mr Pasias had sought, and which I consider would not have been fully and frankly disclosed, Mr Pasias would have resisted conversion whereupon negotiations for the sale of the business to M r Copulos would have commenced and ultimately been concluded.
Expert valuation evidence was adduced from Mr D Bugelly, a chartered accountant, and Mr J C Wood, an auctioneer and valuer. The respondents properly concede that Mr Copulos would have been an interested purchaser and would have had in mind the penalty payable to KFC if the Essendon store had not converted. He must also be taken to have been aware of the difficult trading history of the Essendon business.
Mr Pasias understood even more acutely the trading
difficulties of his own business and I doubt whether he was as sanguine about its underlying strength as he sought to suggest in the course of his evidence. As well, he was unaware of the penalty payable to KFC if his store did not convert. The expert evidence on which he relied must be qualified by the realization that it assumed the continued existence of the Ollies chain. Mr Bugelly, for example, conceded that if that assumption were not made his valuation of the Essendon business would be greatly reduced. Accordingly, the expert valuation cannot be translated directly into a calculation of
the applicant's loss which, doing the best I can I have assessed, in the circumstances, at $150,000.
The second head of damages claimed by the applicants is represented by the costs of converting to a KFC outlet which they incurred. The sum of $34,737 is allowed under this head.
The third head of damages is referable to trading losses said to have been sustained as a result of the applicant's- having. been induced to convert the Essendon store to a KF'C outlet.
The assumption which I have made in allowing damages for the loss of what I have regarded as a highly likely purchase by the Copulos interests, requires the further assumption that such a purchase would have been concluded reasonably quickly to avoid incurring the penalty to KFC. I therefore consider that the applicants would have sold the business by the end of April 1990. The consequential trading losses allowable to the applicants must therefore be calculated from 1 May 1990. I accept the submission of Counsel for the respondents that the applicants cannot be allowed to recover damages under this head in respect of a period after the date on which they should have realized that the trading losses were irreversible. On the evidence, I fix the date of their actual or constructive realization of that inevitability as 31 January 1991. The evidence discloses that the Essendon store's loss of $58,855 for the financial year ended 30 June 1990 was entirely incurred during the latter six months of

that year. It is therefore appropriate to apportion that loss equally to each of those six months after deducting $12,500 for maintenance which Counsel for the applicants accept is included in the sum of $34,737 already allowed as damages represented by the cost of converting to a KFC outlet. As well, there must be deducted personal expenses of $3,500 designated as "bank card and other expenses" which have concededly been included in that loss. Thus adjusted, the loss for the year ended 30 June 1990 was $42,855, of which

$7,109 is apportionable to each of the months of May and June.

On a similar basis the trading loss for the year ended 30 June

1991 was $100,681 which after deducting the same amount of $3,500 claimed for "bank card and other expenses" is reduced

to $97,181 of which $8,098 is apportionable to each of the

seven months which ended on 31 January 1991.

INTEREST

I regard it as an appropriate exercise of the Court's

discretion under s.51 of the Federal Court of Australia Act to award interest on the damages recovered from the date on which each component of the loss was incurred to the date of judgment at the rates announced from time to time pursuant to S. 2 of the Penalty Interest Rates Act 1983 ( V i c ) . The

following table sets out my calculation of interest on that

basis:

Item mount From To Rate Interest

$ S

Loss of sale to	150,000	01/05/90	5,832
Copulos interests	12/07/90	12,240
19/12/90	4,752

Cost of convertrng 34,737 01/06/90

to KFC outlet

12/07/90

19/12/90

Trading lose May '90

7,109

01/06/90 12/07/90

Trading loss June '90

7,109

01/07/90 11/07/90 19.6%	41
12/07/90 18/12/90 18.5%	580
19/12/90 01/03/91 16.1%	225

Trading loss July '90	8,098 01/08/90 18/12/90 18.5% 19/12/90 01/03/91 16.1%
Tradlng loss August '90	8,098 01/09/90 18/12/90 18.5% 447

19/12/90 01/03/91 16.1% 256

Trading loss September'90 8,098 01/10/90 18/12/90 18.5%

19/12/90 01/03/91 16.1%

Trading loss October *90 8,098 01/11/90 18/12/90 18.5% 197

Item Amount From TO R a t e ~ n t e r e s t

5   5

19/12/90 01/03/90 16.1% 256

Trading l o s s November	#90	8,098	01/12/90	18/12/90	18.5%
19/12/90	01/03/90	16.1%
Trading l o s s December	'90	8,098	01/01/91	01/03/91	16.1% 210
Trading l o s s January	'91	8,098	01/02/91	01/03/91	16.1% 104
T o t a l damages	255,641	02/03/91	30/04/91	16.1%	6,861
as a t 1 March	'91	01/05/91	29/10/91	15.0%	19,076
30/10/91	18/02/94	13.2%	77,490

T o t a l i n t e r e s t $135,941

CONCLUSION
For the reasons given above there should be judgment for the
applicants in the sum of $255,641 together with an award of
interest in the sum of $135,941. The applicants must pay the
costs of the respondents including any reserved costs.

I certify that this and the preceding forty three (43) pages are a true copy of the reasons for judgment of his Honour Mr

Justice Ryan A \

Associate:  k2 .L$ ' u

Date:

Counsel for applicants:	Dr C Pannam QC with Mr R I Rosenberg
Solicitors for applicants:	Goulopoulos -Shiels and Mangopoulos
Counsel for respondents:	Mr P J OrCallaghan QC
with Mr D Collins
Solicitors for respondents:	Riordan & Partners