Julstar Pty Ltd v Hart Trading Pty Ltd

[2013] FCA 1359

FEDERAL COURT OF AUSTRALIA

Julstar Pty Ltd v Hart Trading Pty Ltd [2013] FCA 1359

Citation:	Julstar Pty Ltd v Hart Trading Pty Ltd [2013] FCA 1359
Parties:	JULSTAR PTY LTD (ACN 122 620 400), SEMOLINA PTY LTD (ACN 117 933 570), JULIANNE STARIHA, HART TRADING PTY LTD (ACN 114 806 996), COLLEEN TRACEY HART, FRONTLINE RECRUITMENT GROUP PTY LTD (ACN 078 126 851) and PETER JOHN DAVIS
File number(s):	QUD 16 of 2011
Judge(s):	GREENWOOD J
Date of judgment:	12 December 2013
Catchwords:	COMPETITION – consideration of a series of claims of misrepresentations inducing a franchisee to enter into two franchise agreements
Date of hearing:	12, 13, 14, 15, 16, 19 March 2012; 8 May 2012
Date of last submissions:	8 May 2012
Place:	Brisbane
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	784
Counsel for the Applicants:	Mr R A Perry QC
Solicitor for the Applicants:	Shand Taylor Lawyers
Counsel for the First and Second Respondents:	Mr C Jennings
Solicitor for the First and Second Respondents:	Thomsons Lawyers
Counsel for the Third and Fourth Respondents:	Mr A B Crowe QC and Mr M Jones
Solicitor for the Third and Fourth Respondents:	HWL Ebsworth Lawyers

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION	QUD 16 of 2011

BETWEEN:

JULSTAR PTY LTD (ACN 122 620 400)
First Applicant

SEMOLINA PTY LTD (ACN 117 933 570)
Second Applicant

JULIANNE STARIHA
Third Applicant

AND:

HART TRADING PTY LTD (ACN 114 806 996)
First Respondent

COLLEEN TRACEY HART
Second Respondent

FRONTLINE RECRUITMENT GROUP PTY LTD
(ACN 078 126 851)
Third Respondent

PETER JOHN DAVIS
Fourth Respondent

JUDGE:	GREENWOOD J
DATE OF ORDER:	12 DECEMBER 2013
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1.The claims of the applicants as against all respondents are dismissed. 

2.The applicants shall pay the costs of and incidental to the proceedings. 

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION	QUD 16 of 2011

BETWEEN:

JULSTAR PTY LTD (ACN 122 620 400)
Applicant

SEMOLINA PTY LTD (ACN 117 933 570)
Second Applicant

JULIANNE STARIHA
Third Applicant

AND:

HART TRADING PTY LTD (ACN 114 806 996)
First Respondent

COLLEEN TRACEY HART
Second Respondent

FRONTLINE RECRUITMENT GROUP PTY LTD
(ACN 078 126 851)
Third Respondent

PETER JOHN DAVIS
Fourth Respondent

JUDGE:	GREENWOOD J
DATE OF ORDER:	12 DECEMBER 2013
WHERE MADE:	BRISBANE

REASONS FOR JUDGMENT

PART 1 - INTRODUCTION

1. In this proceeding the applicants contend, put simply, that the respondents have engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth), as it was known at the time of the events in question, (the “Act”) in respect of two broad classes of conduct.

2. The applicants contend that in reliance upon the pleaded representations, said to be misleading and deceptive, two companies (the first and second applicants) controlled by the third applicant, Mrs Julianne Stariha, entered into franchise agreements with the third respondent.  The applicants contend that, had they known the truth of the matters in question, neither the first nor the second applicant would have entered into the relevant franchise agreements. 

3. Other causes of action are pleaded by the applicants arising out of the conduct all of which is in controversy in these proceedings. 

4. The first applicant is a company called Julstar Pty Ltd (“Julstar”).  The third applicant, Mrs Stariha, is the sole director of that company. 

5. The second applicant is a company called Semolina Pty Ltd (“Semolina”) and Mrs Stariha is the sole director of that company. 

6. Mrs Stariha is the third applicant. 

7. The first respondent is a company called Hart Trading Pty Ltd (“Hart Trading”).  The sole director of that company is the second respondent, Mrs Colleen Hart (“Mrs Hart”). 

8. Mrs Hart caused Hart Trading to employ Mrs Stariha in a particular capacity from 29 August 2005 in Brisbane in undertaking activities as part of the conduct by Hart Trading of a retail recruitment business, put simply for present purposes, as the Brisbane Frontline Retail Agency.  From November 2005, Mrs Hart and Mrs Stariha made arrangements for Mrs Stariha to operate the Frontline recruitment activities from premises at the Gold Coast as part of seeking to develop, put simply for present purposes, the Gold Coast Frontline retail undertaking for Hart Trading.  The Frontline activity undertaken by Hart Trading both in Brisbane and the Gold Coast from August 2005 until December 2006 was conducted as a franchisee of the third respondent, Frontline Recruitment Group Pty Ltd (“FRGPL”). 

9. The fourth respondent, Mr Peter Davis, is the Managing Director of FRGPL. 

10. On 8 December 2006, Julstar entered into a business contract with Hart Trading to acquire the business known as “Frontline Retail Gold Coast” and as a part of that acquisition Julstar entered into a franchise agreement for the Gold Coast geographical region with FRGPL (then known as Frontline Retail Pty Ltd) for a period of five years. 

11. Mrs Stariha and Julstar contend, put simply, that representations were made to Mrs Stariha by Mrs Hart which induced her to enter into the business contract with Hart Trading and, in turn, the franchise agreement with FRGPL.  Mrs Stariha also contends that representations were made to her (and also, in part, to her husband, Mr Lee Stariha) by Mr Peter Davis which were relied upon by Mr and Mrs Stariha in causing Julstar to enter into the transaction with Hart Trading, acquire the Frontline Retail Gold Coast business from Hart Trading and enter into a new governing franchise agreement with FRGPL. 

12. Mrs Stariha and Semolina contend that Semolina on 1 October 2007 entered into a franchise agreement with FRGPL to acquire the right to operate a Frontline recruitment hospitality agency in a particular geographical territory described as the Gold Coast territory.  Under these arrangements, Semolina would provide staff and employee recruitment services to participants in the hospitality industry.  Mrs Stariha contends that particular representations were made to her by representatives of FRGPL on 6 November 2006, between June 2007 and 30 September 2007 and July 2007 which induced Semolina to undertake a sequence of commercial steps made necessary as part of entering into the Frontline Hospitality Franchise Agreement for the Gold Coast area. 

13. It will, of course, be necessary to examine in considerable detail the content of the conduct in question. 

14. The events at the centre of the dealings between Mrs Stariha and Mrs Hart are in controversy.  Mrs Stariha has given extensive statements and extensive oral evidence in cross‑examination about conversations, the chronology of the events and her understanding of the things put to her by Mrs Hart and the statements made to her by Mrs Hart.  On the other hand, Mrs Hart has a quite different understanding and recollection of the events and the content of conversations.  Similarly, Mrs Stariha has given evidence both in her statements and in oral evidence about her recollection and understanding of her dealings and discussions with, in particular, Mr Davis.  Mr Davis has a different recollection about some material matters in issue.  It has been necessary to examine closely all of the documents to identify objective anchor points against which the recollections of the witnesses might be tested in seeking to determine which versions of the events are more likely to be either a correct recollection of likely events, or alternatively, simply true.  Each side, to a greater or lesser degree, encourages me to reject the evidence of particular witnesses as unreliable, for a number of reasons. 

15. I recall the demeanour of the witnesses as they gave their evidence tested strongly in cross‑examination in the case of the primary witnesses.  However, the resolution of the issues in this case does not turn upon impressions made upon the primary judge of demeanour.  Having said that, I formed the following views about the three principal witnesses. 

16. As to Mrs Stariha, two things might usefully be noted.  First, there is, no doubt, that Mrs Stariha, in giving her evidence exhibited a sense of confidence and affirmative belief in her understanding of the events in question, as she recalled them.  It will be necessary to examine aspects of her approach to identifying and recalling the features of the conduct she relies upon, later in these reasons.  However, in evidence, Mrs Stariha explained her method of placing relevant papers in a box, examining those papers and generally testing her recollection of events against the papers she had kept.  She said, however, that independently of the documents she had a strong recollection of the relevant events.  It will be necessary to examine Mrs Stariha’s evidence about the conduct in question in a chronological way having regard to the documents in evidence to determine, as a question of fact, what occurred.  Second, when confronted with documents which seemed to overstate the facts (relating to the relevant subject matter), Mrs Stariha accepted from time to time that particular documents such as aspects of earlier work experience documents were not correct.  The respondents contend that Mrs Stariha’s version of the events is not true and, further, that Mrs Stariha when giving evidence about matters affecting her interests ought not to be accepted or believed as she is propounding a version of the events which she knows to be untrue. 

17. As to Mrs Hart, she too gave evidence in a way which was affirmatively confident.  Her evidence contradicted much of Mrs Stariha’s evidence.  Mrs Hart was perhaps a little more assertive than Mrs Stariha.  Mrs Hart gave evidence that she had a good recollection of the precise content of the dealings between her and Mrs Stariha and she offered some explanations of how it might be that Mrs Stariha is simply confused about some aspects of the critical events.  For Mrs Stariha, I am encouraged to prefer her version of the events to that of Mrs Hart.  Mrs Hart, it is said, was keen to sell the Gold Coast aspect of the Hart Trading franchise to Mrs Stariha (Mrs Stariha having relatively recently acquired both the Brisbane and Gold Coast aspects of the Frontline franchise from Ellis Trading Pty Ltd) and Mrs Hart, it is said, had a commercial interest in securing Julstar’s purchase of the Gold Coast aspect of that business from Hart Trading.  Mrs Stariha says that Mr Davis had an interest in seeing the Gold Coast aspect of the franchise taken up by a new incoming franchisee. 

18. As to Mr Davis, he was a relatively quietly spoken and forthright witness who made concessions against his interest when propositions were put to him.  He sought to answer questions directly and forthrightly. 

19. I will deal with aspects of the evidence of all of the witnesses when reviewing the events in question. 

20. The method I propose to adopt in seeking to resolve these controversies of fact is this.  First, I propose to identify the way in which the applicants have framed and formulated the conduct in the Statement of Claim.  I propose to then examine the primary evidence of Mrs Stariha by reference to her recollection of events and the documents.  I will then examine the evidence of Mrs Hart, Mr Davis and others on the events the subject of Mrs Stariha’s evidence.  I will then examine the separate question of the Semolina hospitality franchise. 

    PART 2 - THE STATEMENT OF CLAIM OF 3 FEBRUARY 2011

    Conduct up to and including 6 November 2006

21. By para 8, on 4 October 2006, Mrs Hart made oral representations to Mrs Stariha at Hart Trading’s office at Level 3, Kaybank Plaza, Southport, Queensland and, to the extent that representations were partly written, the representations were contained in a spreadsheet entitled “GC Agency” given by Mrs Hart, on behalf of Hart Trading, to Mrs Stariha at the meeting. 

22. The representations were these.  First, the retail recruitment franchised business situated in Southport, Queensland, trading under the name “Frontline Retail”, known as the Gold Coast Frontline Retail Agency (the “Frontline Gold Coast”; “Gold Coast Agency”; “Gold Coast Retail Frontline Agency”), “would be profitable in the future”. 

23. Second, Frontline Gold Coast “had earned Earnings Before Interest and Tax (“EBIT”) of $80,000.00 in the previous year”. 

24. Third, Mrs Stariha “would achieve EBIT of $80,000 in her first year as franchisee of the [Frontline Gold Coast] in addition to paying herself a wage of $50,000.00 per annum if she purchased the [Frontline Gold Coast]”. 

25. Fourth, the “value of the [Frontline Gold Coast] was $240,000.00 based on EBIT of $80,000.00 per annum”. 

26. Fifth, Mrs Stariha, “would receive the benefit of $10,000.00 worth of initial training from [FRGPL]”. 

27. Sixth, “every franchisee of [FRGPL] is successful”. 

28. Seventh, “no franchisee of [FRGPL] has ever failed”. 

29. By para 9, in early October 2006, Mrs Hart on behalf of Hart Trading made oral representations to Mrs Stariha at a coffee shop at the Kaybank Plaza Shopping Centre, Southport to this effect.  First, the “gross income figure of the [Frontline Gold Coast] on the spreadsheet document entitled ‘GC Agency’ was understated”. 

30. Second, Mrs Stariha should “revise the spreadsheet document entitled ‘GC Agency’ to include replacement credits”.

31. Third, “[Frontline Gold Coast] had always achieved average gross income of $11,000.00 per month while operated as part of the Brisbane Frontline Retail Agency”. 

32. By para 10, on 18 October 2006 Mrs Stariha revised the GC Agency spreadsheet by adding into the spreadsheet as income, the amount of “replacement credits” for the months of January, February, July and October 2006.  Replacement credits are described, in the pleading, as recruitment placements made by the Gold Coast Agency with clients in those four months that needed to be “replaced” at a later date in accordance with the terms of the franchise agreement between Hart Trading and FRGPL, because the original placement had left the place of employment within three months of placement.  Mrs Stariha pleads that she obtained the information about the amount of the replacement credits from “national sales reports” which were contained in the “national database” of the franchisor [FRGPL] access to which was provided to Mrs Stariha by FRGPL. 

33. By para 11, Mrs Stariha on 19 October 2006 sent an email to Mrs Hart attaching a copy of a revised spreadsheet, also entitled “GC Agency” which disclosed that the financial performance of the Gold Coast Agency for the 12 month period to October 2006 revealed total income of $173,246.94 and EBIT of $75,787.14. 

34. By para 12, between 19 October 2006 and 23 October 2006, Mrs Hart orally represented to Mrs Stariha at the office of Hart Trading at Level 12, Emirates House, 167 Eagle Street, Brisbane that the revised GC Agency spreadsheet “was accurate” and, the revised GC Agency spreadsheet “showed the true income figures for the [Frontline Gold Coast]. 

35. By para 13, on a date between 21 October 2006 and 3 November 2006, Mrs Hart delivered to Mrs Stariha at Hart Trading’s business office at Level 3, Kaybank Plaza, Southport an untitled five column document that purported to list a number of national retail clients of the franchisor [FRGPL] in the context of a representation by Mrs Hart to Mrs Stariha that “if she purchased the [Frontline Gold Coast] she would have access to 401 contracted clients for whom job placements could be made”. 

36. By para 14, in or about the first half of October 2006, FRGPL provided a copy of its “Standard Franchise Agreement” to Mrs Stariha and the agreement contained a “Minimum Gross Revenue” term (cl 5.1) which contemplated that during the term of the franchise agreement Julstar would be required to co‑operate with FRGPL in the preparation of a business plan setting out minimum performance criteria based upon “Territory Development” requirements and “Gross Revenue” of the undertaking of the franchisee in the relevant territory.  The initial minimum performance criteria would be set out in Schedule 15 to the agreement and those criteria would be required to be reviewed as between FRGPL and Julstar after six months and then 12 months from the date of commencement of the franchised undertaking, and thereafter annually, unless FRGPL instigated an earlier review.  Schedule 15 was in these terms:

    TERRITORY DEVELOPMENT REQUIREMENTS

    Developed Territory
    A developed territory will generate one dollar of revenue for each person in the territory population unless otherwise established in consultation with the franchisor in the review of the business plan detailing minimum performance criteria based on Territory Development requirements.

    Partially Developed Territory
    If the existence territory is not deemed a Developed Territory upon purchase of that territory and the territory has been in operation for over three years, minimum growth of 15% per year is expected until the territory is deemed fully developed. 

    New Territory
    To develop a territory, unless the territory has been deemed to be a “Developed Territory” within the first three years of operation, the following minimum revenue growth per year is required: 

    Yr 1:    Minimum of $150,000. 
    Yr 2:    Minimum of 60% revenue growth from previous year. 
    Yr 3:    Minimum of 50% growth.

    Minimum expected growth for all subsequent years will be 15% unless the territory is considered a Developed Territory. 

37. By para 15, on 6 November 2006, Mr Davis made oral representations to Mrs Stariha to this effect.  First, the “Gold Coast Retail Frontline Agency would easily achieve the Minimum Territory Development Requirements [of cl 5.1 and Schedule 15] in the operation of the [franchised undertaking] if [Mrs Stariha] purchased [the business]”. 

38. Second, the “Gold Coast Frontline Retail Agency was capable of achieving sales of $500,000.00 per annum”. 

39. Third, “if [Mrs Stariha] purchased the said business [from Hart Trading and entered into a franchise agreement with FRGPL] she would achieve a Minimum Territory Development Performance of $240,000.00 in her first year of operating the Gold Coast Frontline Retail Agency”.  These representations are said to have been made in a partly oral and partly implied way.  As to the implied representation, it is said that the representation is to be implied from cl 5.1 and Schedule 15 to the Standard Franchise Agreement given by FRGPL to Mrs Stariha. 

40. By para 16, Mr Davis made representations to Mrs Stariha at a conference called the “Discovery Day” held at FRGPL’s Head Office at Level 20, Suite 2002, Tower 2, 500 Oxford Street, Bondi Junction in New South Wales on 6 November 2006 to this effect.  First, “all of [FRGPL’s] franchisees had operated and were operating financially successful franchise businesses”. 

41. Second, “no franchise business of any franchisee had financially failed and no franchise business was financially failing. 

42. Third, “if [Mrs Stariha] purchased … Gold Coast Frontline Retail Agency, Mrs Stariha would be financially successful in its operation. 

43. By para 17, on 6 November 2006, Mr Davis made oral representations to Mrs Stariha at the Discovery Day conference at the same premises, to this effect.  First, “the value of the Gold Coast Frontline Retail Agency was $240,000.00”. 

44. Second, “other Frontline Recruitment retail franchise businesses had been sold for amounts between $200,000.00 and $300,000.00”. 

45. By para 18, on a date not later than 6 November 2006, Mr Davis made a representation in writing contained in a document described as “Australia Disclosure Document November 2006” to Mrs Stariha to the effect that if Julstar purchased the Gold Coast Frontline Retail Agency “it would have access to over 485 contracted clients who pay a fee for the permanent placement of staff”. 

    Aspects of reliance

1. By para 19, Mrs Stariha relied upon the truth of the representations set out at paras 8 to 13 and took a sequence of steps which involved retaining lawyers to advise her about the standard franchise agreement; attending the Discovery Day conference; incurred and paid expenses to so attend, and by para 20 acting upon the truth of the representations in paras 8 to 13 and 15 to 17, Mrs Stariha caused Julstar to be incorporated on 11 November 2006. 

2. By para 21, Julstar, acting in reliance upon the truth of the representations set out at paras 8 to 13 and paras 15 to 18, undertook a sequence of steps including accepting the terms of an ANZ Bank facility for the purchase of Frontline Gold Coast from Hart Trading; making arrangements to secure the lease of premises for the business at Office 7, Kaybank Plaza, Scarborough Street in Southport; making arrangements with Telstra for communications arrangements; paying monies for the incorporation of the company; stamp duty and other expenses; paying $240,000 to Hart Trading by electronic transfer and on 8 December 2006, entering into a franchise agreement with FRGPL for the acquisition of the right to operate a Frontline Recruitment Retail agency franchise in the territory identified by a map at Schedule 4 to the franchise agreement; and paying a range of other expenses (see para 21(a) to (s)). 

3. By para 22, Mrs Stariha acting in reliance upon the representations at paras 8 to 13 and paras 15 to 18, entered into a Deed of Guarantee and Indemnity in favour of FRGPL of the performance of Julstar and commenced employment with Julstar as from 14 January 2007. 

   Further conduct of FRGPL after 6 November 2006

4. By para 23, on dates between June 2007 and 30 September 2007, FRGPL published a representation on its website in the following terms:  “100% franchise success rate”.  Further, between these dates FRGPL made representations by Mr Davis to Semolina, by making the representations to Mrs Stariha at each of three franchisee conferences conducted by FRGPL as follows:  January 2007 at Melbourne; April 2007 at Auckland and July 2007 at Sydney.  The representations were these.  First, “all of [FRGPL’s] franchisees had operated a financially successful franchise business”. 

5. Second, “no franchise business of any of its franchisees had financially failed”. 

6. Third, [Semolina] would be financially successful in the operation of the franchised undertaking. 

7. By para 24, in about July 2007, Mr Doug Downer on behalf of FRGPL, made a representation to Semolina that FRGPL “would provide initial training to [Semolina] in respect of a Frontline Hospitality franchise business”. 

   Further aspects of reliance

8. By para 25, acting upon the truth of the representations referred to in para 16(a) and 16(b) (made by Mr Davis at the Discovery Day conference on 6 November 2006:  see [40] and [41] of these reasons); para 23 (see [49] to [51] of these reasons); and para 24 (see [52] of these reasons), Semolina took a sequence of steps including entering into a franchise agreement with FRGPL on 1 October 2007 by which Semolina acquired the right to operate a Frontline Recruitment Hospitality franchise in the territory described in Schedule 4 to the Agreement broadly described as the Gold Coast area; paid FRGPL $45,645.48 on 3 October 2007; set up the Semolina undertaking at premises at Shop 1, 130‑136 Scarborough Street, Southport and shared those premises with Julstar; took up a loan ($9,090.91) from Mr Lee Stariha on 19 October 2007 to pay a contribution towards the fit‑out costs of the Scarborough Street premises; and, Mrs Stariha (and Mr Stariha) commenced paying interest to the ANZ Bank on a finance facility related to the acquisition, on a monthly basis. 

9. By para 26, Mrs Stariha acting upon the truth of the representations described at paras 16(a) and 16(b), paras 23 and 24 (as earlier described) took a sequence of steps including making arrangements with her husband on 26 September 2007 to establish a further line of credit ($60,000) as part of Mr Stariha’s home loan facility, so as to pay the franchise territory fee and the training and development fee payable in respect of the Semolina franchise agreement, and to fund contributed set‑up costs associated with the Semolina franchise agreement; entered into a guarantee and indemnity on 1 October 2007 of the obligations of Semolina; paid the franchise territory fee and the training and development fee. 

   The misleading and deceptive quality of the conduct or the likelihood that the conduct was misleading and deceptive on the part of Hart Trading

10. By para 27, the representations at paras 8(a) to (c) and 8(f) and 8(g) (see [21] to [24] of these reasons and [27] and [28] of these reasons) were misleading for these reasons.  First, Frontline Gold Coast did not earn EBIT of $80,000 in the 12 months prior to its acquisition by Julstar.  

11. Second, a Gold Coast Frontline Retail Agency had previously been operated at the Gold Coast by an entity the principal of which was Ms Karen Ellis.  That Frontline undertaking had not operated, under Ms Ellis, at a profit.  The previous Frontline Gold Coast agency under Ms Ellis had been operated between 11 February 2003 and 7 December 2004 and achieved sales of $151,560.  Ms Ellis had been issued with a notice by the franchisor that she had failed to achieve her “Territory Development” requirements set out in the entity’s franchise agreement with FRGPL.  The previous franchise entity had been issued with a notice directed to Ms Ellis requiring the sale of the franchise undertaking because the entity had failed to achieve its Territory Development requirements. 

12. There was no reasonable basis, it is said, for the representations described at paras 8(a) to (c) and 8(f) and 8(g) (see para 27(a) to (c)). 

13. As to these contentions see para 27(a) to (c). 

14. By para 28, the representation at para 8(d) (see [25] of these reasons) was misleading for these reasons.  First, Frontline Gold Coast did not achieve EBIT of $80,000 in the 12 months prior to Julstar’s purchase of the agency. 

15. Second, the value of the Frontline Gold Coast business conducted by Hart Trading, when calculated by reference to the annual income earned by that business in the 12 months prior to 30 October 2006 was less than $240,000, “when compared to the price paid by franchisees for other Frontline Retail Agency franchise businesses” (para 28(b)), on the footing that Frontline Retail Recruitment franchise businesses that had sold for amounts between $200,000 and $350,000 had achieved, in the year before their sale to an incoming franchisee, a particular scale of turnover.  For example, a Sydney franchise sold for $350,000 with turnover in the preceding 12 months of $1 million; a Brisbane franchise sold for $260,000 having achieved turnover in the preceding 12 months of $879,472.60; and an Adelaide franchise had sold for $240,000 where turnover had been $300,000.  Hart Trading had paid $260,000 for the Brisbane Frontline Agency in circumstances where that agency had achieved a turnover of $879,472.60 in the year ending 30 June 2005 (para 28(c)). 

16. By para 29, the representation contained in para 8(e) as to training (see [26] of these reasons) was misleading for these reasons.  First, Julstar was not provided with any initial formal training. 

17. Second, despite Mrs Stariha making oral requests on numerous occasions between April 2007 and July 2007 to staff of FRGPL at its Head Office, FRGPL refused to provide Julstar with any initial formal training. 

18. By para 30, the representations in paras 9(a) (that the gross income of the Frontline Gold Coast Agency was understated in the spreadsheet; see [29] of these reasons) and para 12 (that the spreadsheet was accurate and showed the true income figures for Frontline Gold Coast, see [34] of these reasons), were misleading for these reasons.  First, the gross income figure on the spreadsheet was not understated. 

19. Second, Mrs Hart knew that the revised spreadsheet document entitled “GC Agency” was not accurate because Mrs Hart had operated the Brisbane Frontline Recruitment Agency since 2005 and had operated Frontline Gold Coast from November 2005 until 8 December 2006; and, Mrs Hart knew “how the replacement credit process worked and its effect on income earned by an agency”. 

20. Third, Mrs Hart knew that Mrs Stariha’s revised spreadsheet document entitled “GC Agency” did not provide the correct income figure for the Gold Coast Frontline Retail Agency for the 12 month period ending 31 October 2006 and the state of Mrs Hart’s knowledge were the factors mentioned at [64] of these reasons. 

21. Fourth, Mrs Hart knew that Mrs Stariha’s revision of the spreadsheet document entitled “GC Agency” to add an amount as income for replacement credits in respect of initial placements for the months of January, February, July and October 2006 without making the corresponding adjustment to income in the months in which the replacements were recruited (and in which the income for the replacements was recorded), was overstating the total income earned by Hart Trading in the 12 month period ending 31 October 2006. 

22. By para 31, the representation at para 13 (concerning access to 401 contracted clients) was misleading for these reasons.  First, there were not 401 contracted retail clients in the territory which was being acquired by Julstar. 

23. Second, there were only 167 contracted retail clients in the territory acquired by Julstar. 

24. Third, Hart Trading (and Mrs Hart) knew that there were only 167 contracted clients by reason of Mrs Hart’s conduct of the Frontline Gold Coast Agency from 1 November 2005 until 8 December 2006. 

    Future matters

25. By paras 32 and 33, the representations alleged by paras 8(a) and 8(c) and 13 (see [22], [24] and [35] of these reasons) were representations with respect to a future matter and for there were no reasonable grounds for making the representations (having regard, as to para 13, the matters set out at para 31; see above). 

26. The applicants rely upon s 51A of the Act. 

    The misleading and deceptive conduct of FRGPL

27. By para 35, the contended representations set out in para 15 (concerning the ease with which Julstar would achieve the Territory Development requirements of cl 5.1 and Schedule 15 of the Standard Franchise Agreement) were misleading at 6 November 2006 for these reasons.  First, the Gold Coast Frontline Retail Agency had previously been operated by Ms Ellis and that business had failed. 

28. Second, in the period of Ms Ellis’s conduct of a Frontline agency from 11 February 2003 to 7 December 2004, the agency achieved total sales of $151,560 which were “well below its minimum Territory Development requirements”. 

29. Third, in that period, the agency operated at a financial loss.

30. Fourth, a number of franchisees of FRGPL had failed to meet the Minimum Territory Development requirements set out in each of their respective franchise agreements for varying periods of years (of which 14 examples are identified in the pleading).

31. Fifth, FRGPL issued notices signed by Mr Davis to a number of its franchisees to inform them that they had not met the Minimum Territory Development requirements. 

32. Sixth, FRGPL failed to disclose each of the matters described at [72] to [76] of these reasons to Julstar in circumstances where Julstar had “a reasonable expectation that such disclosure would be made”, on the footing that the matters not disclosed were relevant and material to Julstar (and Mrs Stariha’s) decision to acquire the Gold Coast Frontline Retail Agency from Hart Trading and enter into a governing franchise agreement with FRGPL; and FRGPL’s Disclosure Document at para 3.2, p 5 recited that the franchisor had over 485 clients but failed to disclose which of those clients had businesses in the territory the subject of the proposed Julstar Franchise Agreement. 

33. By para 36, the representations described in para 16 (concerning all franchisees operating in a financially successful way and no franchise business having failed; see [40] of these reasons) and para 23 (concerning the representations between June 2007 and 30 September 2007; see [49] of these reasons) were misleading at 6 November 2006 and September 2007 for these reasons.  First, Ms Ellis had operated a Frontline Gold Coast Agency at a financial loss in the period 11 February 2003 to 7 December 2004. 

34. Second, other identified franchisees of FRGPL had not been financially successful. 

35. Third, FRGPL failed to disclose that at the time Julstar signed its franchise agreement with FRGPL, the franchisor had been involved in Court proceedings in New South Wales with Aura Enterprises Pty Ltd (“Aura”), the Sydney metropolitan franchisee of FRGPL, in which Aura sought a declaration that FRGPL had engaged in unconscionable conduct in contravention of s 51AC of the Act; a judgment had been published on 6 September 2006 in an interlocutory application for injunctions; and FRGPL had served notices of default on Aura asserting that Aura had breached the franchise agreement. 

36. By para 37, the representations at para 17 (concerning the value of the Frontline Gold Coast Agency of $240,000 and the relevance of other sales between $200,000 and $300,000; see [43] and [44] of these reasons) were misleading for the reason that FRGPL failed to disclose to Julstar and Mrs Stariha that other Frontline retail recruitment businesses (identified in the pleading) that had sold for amounts between $200,000 and $350,000, had achieved annual turnover of between $300,000 and $1 million in the 12 months prior to the relevant sale. 

37. By para 38, the representations at para 18 (concerning the representation contained in the November 2006 Disclosure Document as to access to over 485 contracted clients) were misleading for the reason that Julstar did not have access to 485 contracted retail clients for whom it could place candidates for employment, and Julstar had access to only 167 active retail clients. 

38. By para 39, the representation at para 24 (concerning Mr Downer’s representation of the provision of initial training; see [52] of these reasons) was misleading because FRGPL did not provide Semolina with any initial formal training and despite Mrs Stariha’s oral requests between April 2007 and July 2007 to FRGPL’s staff, FRGPL refused to provide Semolina “with any initial formal training because [Mrs Stariha] had previously been employed in a franchise business”. 

    Further future matters

39. By para 40, the representations in para 15 (see [37] to [39] of these reasons) were representations with respect to future matters and there were no reasonable grounds for making the representations having regard to the matters described in para 35 (see [72] to [77] of these reasons).  The applicants rely upon s 51A of the Act.  By para 41, the representations in para 16(c) (that should Mrs Stariha acquire Frontline Gold Coast she would be financially successful in its operation; see [42] of these reasons) and para 23(c) (see [51] of these reasons) were representations with respect to future matters and there were no reasonable grounds for making them having regard to paras 36(a) and (b) (concerning Ms  Ellis’s unsuccessful earlier operation of a Frontline agency at the Gold Coast; see [78] and [79] of these reasons).  The applicants rely upon s 51A of the Act. 

40. By para 42, the representation in para 18 (concerning Julstar’s access to over 485 contracted clients; see [45] of these reasons) was a representation with respect to a future matter and there were no reasonable grounds for making the representation having regard to para 39 (see [83] of these reasons).  The applicants rely upon s 51A of the Act. 

    FRGPL’s conduct

41. By para 43, having regard to the matters at paras 35 to 42 (see [72] to [85] of these reasons), the conduct of FRGPL described in paras 15 to 18 (see [37] to [45] of these reasons) and paras 23 and 24 (see [49] to [52] of these reasons) was misleading or deceptive conduct, or conduct likely to mislead and deceive; and thus conduct in contravention of s 52 of the Act.

42. By paras 44 to 48, the contended loss and damage suffered by Julstar is set out ($495,932.09). 

43. By para 49, the contended loss and damage suffered by Semolina is set out ($79,649.31). 

44. By paras 50 to 54, the contended loss and damage suffered by Mrs Stariha is set out having regard to a range of particular considerations. 

45. The content of the claims based upon the contended loss and damage of the applicants will be addressed later in these reasons. 

    Accessorial liability

46. By para 55 to 57, facts are pleaded which are said to support a claim of accessorial liability in Mrs Hart in respect of the contraventions alleged against Hart Trading.  By paras 58 to 61, facts are pleaded which are said to support a claim of accessorial liability in Mr Davis in respect of the contraventions alleged against FRGPL. 

    The contract claim

47. By para 62, cl 2.39 of the Julstar Franchise Agreement is set out.  That clause deals with the topic of a guarantee given to a client in respect of the placement of a candidate recruited for the client.  Clause 2.39 is in these terms:

    Guarantee for Placements

    The Franchisee shall provide to clients a three‑month guarantee period for placed candidates.  In the event that a candidate has to be replaced as a result of the guarantee, the Franchisee shall be responsible to supply a replacement candidate to the client free of charge.  If the replacement is supplied by another Franchisee, 50% of the original fee, after the deduction of the royalty, will be paid to the Franchisee responsible for supplying that replacement. 

48. By para 63, it was an implied term of the Julstar Franchise Agreement that Julstar would supply a replacement candidate to any clients of FRGPL if FRGPL had a legal obligation to supply a replacement candidate to a client.  The implied term is said to be necessary to give business efficacy to cl 2.39 of the Agreement.  The factors which are said to condition business efficacy and thus the implication of the term are these.  First, cl 2.39 contemplates a replacement guarantee in the event that a candidate “has to be replaced as a result of the Guarantee”. 

49. Second, client agreements between FRGPL and its clients were entered into by “Franchisees or [FRGPL] on behalf of [FRGPL]”. 

50. Third, candidates and replacement candidates were placed with clients of FRGPL by its franchisees. 

51. Fourth, because there is no definition of the terms “Client”, “Replacement” or “Replacement Guarantee”, in the Julstar Franchise Agreement and the meaning of these terms is to be ascertained from the terms of “Client Agreements” entered into between FRGPL and its clients, it is necessary to imply the contended term. 

52. By paras 64 and 65, FRGPL entered into agreements with its clients set out in Schedule D (33 examples pleaded) each of which contained a term that FRGPL would supply a “replacement credit” to the client if, first, an employee placed with the client by FRGPL did not remain in employment with the client to the end of a 90 day period from commencement, described as the “Replacement Guarantee Period”, and, second, the client had paid the invoice rendered by FRGPL for the initial placement within seven days after the commencement of the employee’s employment. 

    Contended Breach

53. By para 66, in breach of the Julstar Franchise Agreement, FRGPL required Julstar to provide replacements to any client with FRGPL where the initial employee placed with the client had ceased employment within the Replacement Guarantee Period notwithstanding that the client had not paid FRGPL’s invoice for the initial placement within seven days of the employee’s commencement with the client; and, FRGPL was not legally obliged to supply a candidate to the client pursuant to the terms of the Client Agreements; and, Julstar was not legally obliged to supply a replacement candidate to the client pursuant to cl 2.39 of the agreement. 

54. By para 67, Julstar supplied Replacement Credits to the clients of FRGPL as required by the franchisor which Julstar was not legally obliged to supply pursuant to cl 2.39 of the agreement.  The total value of the credits is set out in Schedule D to the pleading and by para 68, Julstar suffered loss and damage by reason of FRGPL’s contended breach, to the value of $109,814.56. 

1. By paras 69 to 72, the applicants set up an alternative collateral contract giving rise to contended loss of the same value. 

2. By paras 73 to 76, the applicants assert a failure on the part of FRGPL to comply with the requirements of the Franchising Code of Australia and by para 77 assert loss and damage arising from that contravention in Julstar of $495,932.13 and loss and damage in Mrs Stariha of $69,667.92. 

   PART 3 – BACKGROUND MATTERS LEADING UP TO MRS HART’S ENGAGEMENT WITH MRS STARIHA AND THE SALE TO JULSTAR

3. Mrs Hart gave the following evidence in her amended witness statement of 31 January 2012 concerning background matters leading up to her first engagement with Mrs Stariha, Hart Trading’s employment of Mrs Stariha, and the discussions leading up to Mrs Stariha relocating to Hart Trading’s Gold Coast office on or about 7 November 2005.  It will, of course, be necessary to examine this evidence in the context of the later cross‑examination but the following relevant matters are drawn from the version of events contained in Mrs Hart’s amended statement.  Mrs Stariha’s statement essentially begins with the events in October 2006.  I will examine the following matters drawn from Mrs Hart’s amended statement and then take up the matters identified by Mrs Stariha.  Later in these reasons I will then examine this material in the context of the cross‑examination of each witness. 

4. In June 2003, Mrs Hart applied for a position with a client for which Frontline Retail Brisbane was conducting recruitment activity.  At this time, Frontline Retail Pty Ltd (as FRGPL was formerly known) had established, as franchisor, a franchise agreement for the State of Queensland with a franchisee called Ellis Trading Pty Ltd (“Ellis Trading”), the principal of which was Ms Karen Ellis.  The franchisor conducts, through its franchise network, the business of recruiting permanent and casual staff for clients.  The franchisor began the business in 1995 and has a range of franchisees throughout Australia. 

5. In the case of Ellis Trading, Ms Ellis operated a franchise for the entire State of Queensland. 

6. Mrs Hart was interviewed by Ms Ellis for the position advertised by the client.  However, during the second interview with Ms Ellis, Mrs Hart was asked to join Ellis Trading as a “recruitment consultant”.  Mrs Hart commenced in that role on 14 July 2003. 

7. About six weeks later, Mrs Hart was called to a meeting with Mr Peter Davis and Ms Ellis.  At this meeting, Mr Davis asked Mrs Hart to manage the Frontline Brisbane Agency “on behalf of Frontline and Ellis Trading”.  Mrs Hart understood from Mr Davis (and Ms Ellis confirmed it to be so) that she was being offered this role because Ms Ellis had become pregnant and wanted to remove herself from the management of Frontline Brisbane (recognising that the Ellis Trading franchise was for the whole of the State and not just Brisbane). 

8. Mrs Hart’s new role was largely a managerial one and involved managing all of the franchisee’s staff.  Those staff would report to her.  Mrs Hart would also be responsible for the franchisee’s budget for its activities throughout the State of Queensland.  Mrs Hart also had to ensure that all staff of the franchisee were achieving their individual “Key Personal Indicators” (“KPIs”).  Mrs Hart met with staff on a weekly basis to ensure that these KPIs were being met.  Mrs Hart was also a recruitment consultant acting for particular clients.  Mrs Hart also had to achieve her own KPIs. 

9. The franchisor requires employees of its franchisees to undertake training as to the KPIs they are required to meet.  Mrs Hart puts in evidence a document called “Weekly Consultant KPI Minimum Standards” as at April 2006 which sets out the field of KPIs stipulated by the franchisor at that time.  The document addresses 28 essential Key Performance Indicators (for a given period) which, for example, include the number of managed accounts to be handled, key contacts to be made, new key contacts, the number of client interviews to be held, the number of client interviews to be booked, the number of client contacts to be made by phone or email, the number of candidates to be contacted by phone or email and other matters.  Mrs Hart says that the idea behind the training and the stipulation of the KPIs is that “… the activity you do [in terms of meeting the KPIs] decides your outcomes and if you follow the recipe, you will be successful” (para 13, Amended Statement, 31 January 2012).  Mrs Hart says that her experience tells her that franchisees that demonstrate strong compliance with the KPIs do better than those which exhibit weak compliance with the KPIs. 

10. In late July 2003, Ms Ellis told Mrs Hart that Ellis Trading proposed to open a Frontline Retail agency on the Gold Coast in August 2003.  Ms Ellis told Mrs Hart that she had arranged for one of the Brisbane‑based employees, Ms Niki Garnett‑Palmer, to transfer to the new Gold Coast office.  She would report directly to Ms Ellis.  This happened at about the same time that Mrs Hart became the Manager under the arrangements earlier described. 

11. Mrs Hart says that she was not privy to financial information for the Gold Coast agency.  She cannot comment on the success or otherwise of the Gold Coast agency.  Mrs Hart could see the sales performance in the database maintained by the franchisor for the entire franchise system which Mrs Hart calls the “Frontline Database”. 

12. Mrs Hart says that Ms Ellis told her that she was going to close the Gold Coast agency in or around December 2004.  In February 2005, Ms Ellis told Mrs Hart that she had closed the Gold Coast agency because she had two small children and opening and building new agencies in Queensland would be difficult for her to manage.  Mrs Hart says that on this footing, Ms Ellis asked Mrs Hart to consider going into equal partnership with her in opening new agencies including a proposal to re‑open the Gold Coast agency and open a new office in Cairns. 

13. In April 2005, Mrs Hart rejected Ms Ellis’s proposal.  The day after doing so, Ms Ellis offered to sell the Frontline Brisbane agency to Mrs Hart.  Ms Ellis said she would sell the Brisbane agency to Mrs Hart as a “developed agency” and would then sell other territories (Gold Coast, the Sunshine Coast and North Queensland) as undeveloped territories.  The negotiations between Ms Ellis and Mrs Hart for the purchase of the “Brisbane Agency” commenced in or around May 2005.  There were extensive negotiations with several meetings including a meeting with Ms Ellis’s Accountant.  During the negotiations, Ms Ellis provided Mrs Hart with profit and loss statements which recorded, as Mrs Hart understood the position, the entire income of the franchisee for the State of Queensland.  The documents handed to Mrs Hart by Ms Ellis during the negotiations for the purchase of the Brisbane element of the franchise included Profit and Loss Statements for the period July 2002 to June 2005 for Ellis Trading; a forecast for the Brisbane agency for the financial year 2005/2006; and a Sales Report for the period 1 July 2004 to 30 June 2005. 

14. In the course of the discussions, Ms Ellis told Mrs Hart that the expenses recorded in the statements included some personal expenses such as school fees and thus Mrs Hart was told she needed to understand that the business was “more profitable than it appeared on paper”.  In other words, the financial statistics understated the true position because some of the expenses were not expenses incurred in deriving the earnings of the business. 

15. Mrs Hart said that she understood that her own “due diligence enquiries” needed to consider the expenses that she would incur “in running the franchise” particularly as compared with the expenses attributed to the undertaking by Ms Ellis. 

16. Mrs Hart was “keen to purchase the entire Queensland territory”, set up agencies in various territories within Queensland and then sell each as a “developed franchise”.  Mrs Hart thought that the Gold Coast territory (or Agency) had great potential and thus she “pushed” Ms Ellis to include the Gold Coast territory in the sale so that she could re‑open the franchise at the Gold Coast.  Finally, Ms Ellis and Mrs Hart agreed that Mrs Hart would purchase, subject to the relevant arrangements with the franchisor, a territory comprising the Brisbane metropolitan territory and a defined Gold Coast territory which, combined, represented the franchise Mrs Hart would take up. 

17. These arrangements were agreed to by Mr Davis during the course of the negotiations with Ms Ellis.  Mr Davis agreed to extend the Brisbane territory to include the Gold Coast territory as part of the Hart Trading franchise, for the purposes of the sale to Mrs Hart.  Mrs Hart made it plain that unless she secured a right to the Gold Coast territory she would “walk away” from the transaction entirely.  Nevertheless, Mrs Hart says that Mr Davis made it clear to her that the Gold Coast territory, taken up by Mrs Hart as part of the franchise, “would have to be sold by me as a separate Franchise as soon as it was ready for sale” [emphasis added] (para 29).  Mrs Hart says that she was in contact with Mr Davis throughout the negotiations with Ms Ellis in relation to the sale and, “the purchase price in particular”. 

18. The negotiations were protracted and a purchase price was eventually agreed at $320,000 in about June 2005.  That sum would be payable less the value of replacement credits which the buyer would have to provide to meet the former obligations of Ellis Trading.  Although replacement credits are calculated by the Head Office of Frontline, Mrs Hart had access to the Frontline database which provided her with details of the value of the replacement credits. 

19. Mrs Hart describes the notion of replacement credits in this way. 

20. A client pays Frontline a fee for the placement of a successful candidate.  Should the candidate leave the client business for any reason (other than redundancy) within a three month period, the Frontline franchisee that recruited the candidate must recruit a new candidate for the client without any additional fee being charged to the client.  This “obligation” to provide a replacement candidate is known as a “replacement credit” and the practice is common in the recruitment industry.  In effect, the client has an entitlement to a free placement (or replacement) which involves the franchisee doing further work for which no extra fee is payable.  It represents an obligation to be performed and is treated within the Frontline database as a “negative value” within the franchisee’s business, to be discharged.  It is important for a franchisee to keep track of these replacement obligations as the franchisee would normally wish to honour them as quickly as possible so as to discharge the obligation.  This is particularly so if a franchisee wishes to sell a business as the carrying “value” of the replacement obligation is always deducted from any purchase price a franchisee might achieve in selling the business.  The replacement credit is not a credit in the sense that a refund of the placement fee issues to the client.  It is a credit in the sense that the client has an entitlement to the placement of another candidate for no fee.  Once a replacement candidate is found, the “replacement credit” then becomes recognised in the Frontline database as simply a “replacement” which is not accounted for in any financial sense as either a revenue or expense item in a profit and loss analysis of the franchisee. 

21. On 17 June 2005, Mrs Hart caused Hart Trading to be incorporated.  She is a Director of that company.  Hart Trading entered into a contract with Ellis Trading to purchase the relevant franchise interest on 8 July 2005.  The contract settled on that date.  On 5 July 2005, Hart Trading (in a trustee capacity) entered into a franchise agreement directly with FRGPL for two territories comprising the Brisbane metropolitan area and a defined Gold Coast area. 

22. As part of the sale, Mrs Hart negotiated a vendor finance arrangement with Ms Ellis reflected in the Special Conditions of the Business Contract.  Hart Trading agreed to pay Ellis Trading $140,000 on settlement less any deposit, and wages owing to employees.  Ellis Trading would finance the balance owing until settlement of the sale of an investment property owned by Mrs Hart.  Hart Trading would pay monthly vendor finance interest payments to Ellis Trading until the balance was paid.  The value of replacement credits set off against the purchase price was $56,237.08.  The deposit was $4,700 and the wages owing were $3,226.17. 

23. After completion of the transaction on 8 July 2005, Hart Trading made monthly payments of interest to Ellis Trading and finally paid the balance of the purchase price of $120,536.75 on 20 December 2005. 

24. From the commencement of the franchise undertaking, Hart Trading has utilised MYOB financial accounting software.  Prior to the sale of the Gold Coast Agency to Julstar, the MYOB financial accounting software was uploaded to computers at Hart Trading’s Brisbane offices to record all financial transactions so as to have data readily available for review in the management of the financial performance of the franchisee, and to provide information to Hart Trading’s Accountants.  Ms Carolyn Hutt regularly attended Hart Trading’s Brisbane offices to enter data into the MYOB accounting modules from source documents, such as receipts, provided to her. 

    Some aspects of the documents

25. Some aspects of the documents to this point are these. 

26. On 31 March 2005, Mr Davis sent an email to Ms Ellis dealing with a number of matters relating to a meeting to be held with Ms Ellis on 1 April 2005.  Mr Davis said that he would need to discuss circumstances which had led, in his view, to a breach of the franchise agreement; the timeline of what happened; the procedural breakdown which occurred regarding a candidate being presented to a client for a Sydney position without the Sydney franchisee being informed (which suggested to Mr Davis a broader problem); actions taken since the breach; and measures to ensure that such circumstances did not re‑occur.  Mr Davis said that other key objectives to be discussed concerned, first, recent discussions “around Partnership, Selling and Regionalisation and how this has been handled”, and, second, expressions of concern from other franchisees “about the poor performance of Queensland (this includes both the Brisbane agency and the closing down of the Gold Coast) and how this is potentially threatening the value of the network as a whole”. 

27. Mr Davis also said “with this in mind we need to address the real and perceived damage your actions are now causing the network”.  Mr Davis concluded that it was not his “intention to ‘slap you across the wrist’ – that has been done, it is to objectively take stock of the situation and help you deal with it in a manner that is in keeping with the best interests of both yourself and the Frontline Retail business”. 

28. Plainly enough, Mr Davis was concerned about, at least, perceptions within the ranks of other franchisees, about the poor performance of the Queensland franchise by Ellis Trading both in relation to the Brisbane metropolitan area and the closing down of the Gold Coast presence. 

29. On 22 April 2005, FRGPL and Ellis Trading entered into a Deed of Variation of the Ellis Trading Franchise Agreement of 1 July 2001.  By the variation, as from 1 April 2005, the Schedule 4 territory for the purposes of the agreement would be reduced from the “State of Queensland” to an area indicated on a map attached to the Deed of Variation.  The State of Queensland would also be divided into a number of different territories described as Levels 1, 2, 3 and 4 with a formula for determining the initial franchise fee for each particular level.  

30. On 26 May 2005, Mr Davis and Ms Ellis entered into a document called “Franchisee Intention to Sell Agreement”.  Under that document, Ellis Trading agreed to sell the Queensland franchise if and when the agreed sale price was offered ($350,000).  The franchise agreement provided that before Ellis Trading could offer the franchise for sale, it was required to first offer the franchise to the franchisor.  Ellis Trading was required to provide current financial information to FRGPL. 

31. On 8 July 2005, Ellis Trading and Hart Trading entered into a Business Sale Contract at a price of $320,000 with a deposit of $4,700 having been paid.  By the Special Conditions, Hart Trading agreed to the cancellation of the existing franchise and the grant of a new franchise confined to the Brisbane and Gold Coast territories.  On settlement, Hart Trading would pay Ellis Trading $140,000 less the deposit, and the balance of the purchase price would be a debt owing by Hart Trading to Ellis Trading.  That debt would be paid within 12 months of 8 July 2005 (by 8 July 2006) or upon settlement of the sale by Mr and Mrs Hart of a property at Wavell Heights, whichever event would first occur.  Interest would be paid at 6.55% monthly in arrears with the first payment falling due on 8 August 2005.  By cl 8, should Hart Trading default in making any monthly payment, then Hart Trading, if requested by Ellis Trading, would be required to re‑transfer the assigned business (then the subject of a fresh franchise agreement with FRGPL) to Ellis Trading and forthwith vacate the premises occupied by the business. 

32. Mr and Mrs Hart entered into a guarantee of the performance of the obligations of Hart Trading. 

33. On 8 July 2005, Hart Trading (as trustee for the Hart Family Trust) entered into a Franchise Agreement with FRGPL for a territory defined by reference to a map which marks the boundaries of two areas relevantly described as the Brisbane and Gold Coast territories.  The term was five years commencing on 8 July 2005 involving a royalty payable to the franchisor of 20% plus GST.  The Schedule 15 “Territory Development” requirements for “developing” a territory, contemplated minimum revenue in Year 1 of $170,000 per consultant; Year 2 minimum revenue reflecting 60% growth over the previous year; and Year 3 minimum revenue reflecting 50% growth over Year 2 revenue until the territory became “fully developed”.  Minimum expected growth for all subsequent years was 30% until the territory became regarded as a “Developed Territory”. 

34. Mrs Hart has isolated, from sales data contained within the Frontline database, the sales (placement fees) of the Gold Coast Agency during the period from July 2003 to 30 June 2011 (para 67, CTH 15).  In the period in which Ellis Trading conducted recruitment activities from the Gold Coast (August 2003 until 31 December 2004), the sales attributable to those activities recorded in the Frontline database are these. 

Financial Year	2003/2004	2004/2005
July	-	$6,999.00
August	$3,289.00	-$5,495.00
September	-	-
Qrt 1	$3,289.00	$1,504.00
October	-	-$3,357.00
November	$33,798.00	$9,315.00
December	$34,245.00	$6,113.00
Qrt 2	$68,043.00	$12,071.00
January	$6,210.00	-
February	$11,347.00	-
March	$1,987.00	-
Qrt 3	$19,544.00	-
April	$11,452.00	-
May	$12,007.00	-
June	$23,462.00	-
Qrt 4	$49,921.00	-
Year End	$137,797.00	$13,575.00

1. It follows, according to this data, that for the period 1 August 2003 to 31 December 2004, Ellis Trading generated revenue from the Gold Coast Agency of $151,372.00. 

2. In the negotiations with Ms Ellis, Mrs Hart was provided with the documents earlier described and identified as CTH 2 to her affidavit.  In the period 1 July 2002 to 30 June 2003, Ellis Trading, in respect of all of its activities as a franchisee throughout Queensland (not just the Gold Coast) generated an operating profit of $54,845.56 based on total income of $266,428.16 having regard to total operating expenses of $211,582.60.  Having regard to some other minor income and expenses the ultimate net profit was $53,274.32.  The net profit was struck after paying wages to K. Ellis of $31,692.40 and wages to D. Ellis of $500.00.  The ultimate value of the business to Mr and Mrs Ellis (apart from any private expenses attributed to the business), it seems, was $85,466.72. 

1. The Profit and Loss Statement for the financial year 1 July 2003 to 30 June 2004 shows an operating profit of $53,198.82 based on total income of $672,466.63 and total expenses of $433,423.49.  In the space of one financial year, the placement revenue apparently grew by $406,038.47.  In that financial year, the wages paid to K. Ellis were $54,346.28 and the wages paid to D. Ellis were $52,346.20.  These statistics are reflected in profit and loss papers prepared on 15 July 2004.  The Profit and Loss Statement for the financial year ending 30 June 2004 finalised as at 30 May 2005 suggests an operating profit of $12,510.35 based on total income of $647,802.45 and total operating expenses of $635,292.10.  Apart from other minor income and expenses, the net profit was $12,196.46.  Wages paid to K. Ellis were $58,346.28 and to D. Ellis $56,346.20. 

2. The operating profit before income tax for the financial years ending 30 June 2003 and 30 June 2004 recited in the financial statements for Ellis Trading Pty Ltd was $48,485.00 and $19,594.00 respectively. 

3. Hart Trading commenced operating the franchise in July 2005.  Initially, in July 2005, Mr Davis permitted Hart Trading to make placements to clients outside Hart Trading’s franchised territory by making placements in North Queensland and the Sunshine Coast.  These arrangements were agreed between Mrs Hart and Mr Davis.  They also agreed that Mrs Hart could continue to do so until these territories had been sold to a new franchisee, so as to ensure that clients received placement services.  Placement fees attributable to these services are therefore reflected in a profit and loss account for Hart Trading for the financial year ending 30 June 2006 (para 42). 

   Further evidence drawn from Mrs Hart’s amended statement

4. On 29 July 2002, Mrs Stariha then known as Julianne Jones (prior to her marriage to Lee Stariha) registered with the Frontline Brisbane Agency for placement in positions handled by the agency.  Mrs Hart says that Mrs Stariha was placed in three positions for clients by the agency, commencing on 19 August 2002, 24 December 2002 and 27 April 2003 being positions with Uncle Bob’s Bakery, City Beach and Just Jeans, respectively (CTH 12A).  Mrs Stariha filled out an employment application on 29 July 2002 and set out background material in relation to her last three employment positions.  One of Mrs Stariha’s references was given by Mr Harris the Retail Director for an English entity called “Eat Ltd”.  In the reference, Mr Harris said this:

   As a Senior Store Manager, her duties have included the operational support to seven of our cafes.  Julianne was initially recruited as a “trouble shooter” to ensure the success of the South Bank Center.  Julianne initiated teamwork and built a sense of “customer service” within the business and ultimately ensured Eat’s success.  It was her sales driven and commercially aware approach which led her to becoming a Senior Store Manager.  Her role in the past six months has been the operational support to seven cafes including concessional stores within Selfridges and the South Bank Center. 

   I would describe Julianne’s best attributes to be her dedication and eye for detail.  She is proactive in her approach believing in “systems” and making things “water tight”.  Consistency is her belief, to provide consistently good service and standards every minute of the day.  …

   [emphasis added]

5. Mrs Hart says that on 11 August 2005, Mrs Stariha applied for a position as a Recruitment Consultant with Hart Trading within the Brisbane agency directly, rather than a placement with a client.  Mrs Hart puts in evidence (CTH 13) a copy of Mrs Stariha’s Curriculum Vitae (“CV”) submitted in support of her application for that position.  It will be necessary to return to aspects of that CV which were put to Mrs Stariha in cross‑examination concerning her description of the performance of the business called Café Addict Pty Ltd and her role in relation to International Working Holidays.  Nevertheless, Mrs Hart says that she was impressed with Mrs Stariha having regard to her CV and the later interview she had with Mrs Stariha.  Mrs Hart noted Mrs Stariha’s experience with retail businesses based on reading her CV documents to that point.  Mrs Hart says that Mrs Stariha appeared, on the face of her stated experience, to be convincing and she seemed to have a detailed understanding of financial matters as well as experience in business development.  Mrs Stariha “interviewed strongly” confirming Mrs Hart’s impression of her.  It was “difficult not to be impressed with Julianne” says Mrs Hart. 

6. On 29 August 2005, Mrs Hart employed Mrs Stariha as a Recruitment Consultant employed by Hart Trading in Brisbane. 

7. Mrs Stariha’s first few days of employment were taken up with “Orientation training” conducted by Mrs Hart.  Mrs Hart does not recall the content of the training given to Mrs Stariha but based on her usual practice, Mrs Hart says she has no reason to believe that she did not undertake the following steps. 

8. Normally, Mrs Hart explains the history of the Frontline franchise.  She identifies the year each Frontline agency opened starting with Sydney in 1995, Melbourne, Brisbane and other sites.  Mrs Hart explains that Frontline has been established for 15 years; has a national presence; and that Recruitment Consultants of the franchisees are “territory experts”.  In the context of this general description, Mrs Hart makes reference (para 53), inclusively, to Frontline’s Gold Coast presence in 2003.  Mrs Hart says that as part of the orientation she tells attendees about the contract the client will enter into with Frontline and she gives each new employee a copy of the standard contract used as between Frontline and clients, and asks the new employee to read the document carefully so that each employee “fully understands the contract” in dealings with clients and also to enable the employee to calculate the recruitment fee payable by the client.  At CTH 14, Mrs Hart puts in evidence a true copy of the pro forma contract that she used in the business and had available to her when Mrs Stariha undertook the Orientation training. 

9. Two things ought to be noted about that document. 

10. First, the placement fee is calculated on the following basis:

SALARY PACKAGE	PLACEMENT FEE
Less than $50K	11% of Annual Salary Package Minimum fee of $3500 plus GST
$50 – 70K	14% of Annual Salary Package plus GST
$70 – 120K	17% of Annual Salary Package plus GST
$120K plus	20% of Annual Salary Package plus GST OR 17% of Annual Salary Package plus GST with 8 week Exclusivity Clause**

1. Second, the guarantee term is framed this way:

   Guarantees:  A ninety (90) day replacement guarantee applies from the successful candidates [sic] start date on the provision that:

   ŸPayment for placement is to be received no more than seven (7) days after the commencement date of employment. 

   ŸThe terms and conditions of original employment, stated in the letter of offer or by verbal agreement, remain unchanged.

   Ÿ        Replacements are available only in the State of original placement.

   ŸThere is a limit of one replacement on any one previously invoiced placement.

   Ÿ        The replacement owing date is the final date of employment. 

2. Mrs Hart says that as part of the orientation training she “would have told Julianne that in my business, we are always flexible … about replacements and payments” [emphasis added].  Mrs Hart, in her principal amended statement, says that she has no active present recollection of the content of these orientation matters but relies upon her usual practice.  Mrs Hart says that the reason she emphasises flexibility about replacements is that clients, in her experience, frequently pay the placement fee late (beyond the seven day period) and Frontline “could lose large national clients if we did not allow some leeway”.  Mrs Hart says that she jokingly suggests in the orientation training that “if we enforced a strict 7 day payment policy, we would not have a single client left”.  Mrs Hart says this approach reflects the standard practice adopted nationally by Frontline.  At para 60, Mrs Hart says she believes that she did not depart from her usual practice when engaging in the orientation training with Mrs Stariha and by way of emphasis she repeats that she believes she told Mrs Stariha that Frontline had opened an agency on the Gold Coast in 2003, and that, in practice, it was normal for Frontline franchisees to afford a client some flexibility in the payment period while still honouring the replacement promise (see para 60(a) and (b)). 

3. During Mrs Stariha’s period of employment as a Recruitment Consultant in the Brisbane agency, Mrs Hart recalls that Mrs Stariha performed her role “exceptionally well” and that she “exceeded her KPIs and budgets, as well as adapting to the role effortlessly”.  For this reason, Mrs Hart decided that Mrs Stariha “was the perfect candidate to manage the Gold Coast Agency” which Mrs Hart had “always intended to re‑open after Hart Trading purchased the franchise from Ellis Trading”. 

4. Mrs Hart says she met with Mrs Stariha in October 2005 to ask her if she would consider transferring to the Gold Coast so as to re‑open the Gold Coast Agency.  At para 63, Mrs Hart says this:

   I explained the history of the Gold Coast Agency including the fact that it had been owned previously by Karen Ellis.  I told Julianne that Karen had run the Gold Coast Agency out of the Kaybank Plaza in Southport for 17 months between August 2003 and December 2004, before deciding that it was easier for her at the time to sell it as an undeveloped territory, as opposed to a developed territory. 

5. Mrs Hart says that she told Mrs Stariha that she had purchased a territory from Ellis Trading which included the Gold Coast territory as she had intended to re‑open the Gold Coast Agency “as soon as possible after my purchase”.  Mrs Hart says that she told Mrs Stariha she was going to re‑open the Gold Coast Agency in the same location where Ms Ellis had operated it because “in using the same address we would not be confusing our clients or candidates”. 

6. At para 65, Mrs Hart says this:

   At that meeting [October 2005], I explained the performance of the agency under Karen and I showed Julianne a spreadsheet of the sales under Ellis Trading for the 2003/2004 and 2004/2005 financial years (Spreadsheet).  I recall clearly that I showed Julianne this Spreadsheet to show her the figures the Gold Coast Agency had achieved with the recruitment consultants employed by Karen.  I recall saying this because I told her that I thought she could do better because I felt she was a stronger recruiter that the past employees.  …

7. Mrs Hart says that the spreadsheet she showed Mrs Stariha in October 2005 was produced from the Frontline database.  Mrs Hart no longer has a copy of the spreadsheet and she can no longer generate the “particular document” as it is a “living document”, up to the current period.  However, Mrs Hart has prepared another spreadsheet, as earlier described, containing sales data from the Frontline database for the Gold Coast Agency for the period 2003 until May 2011.  I have already set out that data for the period of trading by Ellis Trading.  The sales for the 2005/2006 and 2006/2007 financial years by the Gold Coast Frontline Retail Agency were these according to Mrs Hart’s data (CTH 15):

Financial Year	2005/2006	2006/2007
July	-	$15,320.00
August	-	$4,886.00
September	-	$4,620.00
Qrt 1	$0	$24,826.00
October	-	$31,404.00
November	$10,791.00	$36,390.00
December	$20,661.00	$9,182.00
Qrt 2	$31,452.00	$76,976.00
January	$14,334.00	-$17,879.00
February	$34,306.00	$12,043.00
March	$11,471.00	$28,670.00
Qrt 3	$60,110.00	$22,833.00
April	$23,522.00	$24,547.00
May	$30,658.00	$4,360.00
June	$38,015.00	$29,975.00
Qrt 4	$92,194.00	$58,882.00
Year End	$183,757.00	$183,517.00

1. It follows, according to this data, that in the period 7 November 2005 to 31 October 2006, sales by the Gold Coast Agency were $239,987.00.  The minimum Year 1 revenue requirement under the Hart Trading Franchise Agreement for the undeveloped territory of the Gold Coast was $170,000. 

2. Mrs Hart says that in the October 2005 meeting she told Mrs Stariha that it was her intention to sell the Gold Coast Agency and that she was only opening it so as to sell it.  Mrs Hart says she told Mrs Stariha she wanted to keep the Gold Coast Agency for a minimum of one year to optimise tax savings.  She says she suggested to Mrs Stariha that “maybe [Mrs Stariha] could be the new business owner”.  Mrs Hart says she made this suggestion “in an effort to plant a seed of an idea in her mind”.  Mrs Hart also said this at para 69:

   Julianne told me she had always believed and saw herself as a business owner and although she sold her café [Café Addict Pty Ltd] for a profit, she had not enjoyed it as much as she thought she would.  I told that maybe the café just was not the right business. 

3. At para 70, Mrs Hart says this:

   I had earmarked Julianne as a potential buyer for the Gold Coast Agency before I ever approached her to simply be its employee [at the Gold Coast for Hart Trading]. 

4. Mrs Hart says that in the meeting in October 2005 with Mrs Stariha, Mrs Hart told her, in the course of outlining the history of Ellis Trading’s activities at the Gold Coast for Frontline, that Ms Diane Knight and Ms Niki Garnett‑Palmer were former employees of Ellis Trading under Karen Ellis.  Mrs Hart says that she explained the former engagement of those two individuals with Ellis Trading and the Gold Coast because each of them had become a client of the Frontline business.  Ms Garnett‑Palmer joined “Pretty Girl Fashion Group” and became a client and Ms Knight joined “Billabong” and became a client. 

5. Mrs Hart says that Mrs Stariha needed to be aware of these relationships because “she would be expected to make regular contact with each of them”.  Another “important” factor informing Mrs Hart’s mind on this topic was that she had confidence in Mrs Stariha to out‑perform either of those former employees.  Mrs Hart, at para 72, says this:

   I had been a peer of both Niki and Diane, I knew them and their ability, and I believed that Julianne was a better performer in recruitment.  During the meeting in October 2005, I told Julianne that I believed she was a stronger performer than Niki and Diane and that I believed she could obtain better results than they had obtained. 

6. The underlined section in the above quote drawn from Mrs Hart’s amended statement reflects an addition to para 72.  Mrs Stariha says in her further statement of 6 March 2012 at para 17 that Mrs Hart did not say to her the words Mrs Hart asserts in the amendment to her statement set out above. 

7. Mrs Hart has reviewed the Frontline database to identify the recording by Mrs Stariha as a recruitment consultant for Hart Trading of any conversations between Mrs Stariha and either Ms Knight or Ms Garnett‑Palmer (as the KPIs require).  At CTH 16, Mrs Hart puts in evidence a true copy of screen shots she has copied from the Frontline database that show particular conversations recorded by Mrs Stariha. 

   The screen shots

8. On 20 January 2006, Mrs Stariha records a weekly outgoing client conversation with Ms Knight of Billabong in which Mrs Stariha notes:  “heard there is an asm role at burleigh … anything for us?  She is fine – no help”. 

9. On 23 January 2006, Mrs Stariha records a weekly outgoing client conversation with Ms Knight in which Mrs Stariha notes: 

   making sure no roles – helping her with her change of job. 

   Fabulous company.  Wouldn’t mind – movieworld – area manager of sorts.  Interested in multisite.  $55k. 

   Asm – burleigh – give it to us ….. same industry ……. put forward kim lawrence.

10. On 27 January 2006, Mrs Stariha records a weekly outgoing client conversation with Ms Knight in which Mrs Stariha notes:  “diane came to visit the office – update on billabong and doing the rounds of the agencies”. 

11. On 20 February 2006, Ms Stariha appears to have had a weekly outgoing conversation under the description “Catch Up” with Ms Knight in which Ms Stariha notes this: 

    she is no longer with

    contract was up in end of january – in fairness to you – I will move on … Felt like doing justice to the role.  They appreciated it. 

12. On 22 March 2006, Mrs Stariha records a weekly outgoing client conversation with Ms Garnett‑Palmer of Pretty Girl Fashion Group in which Mrs Stariha notes:

    how about that store management role at robina … she will be right.

    Great to meet her in person.

13. On 2 August 2006, Mrs Stariha records that she left an outgoing message with Ms Knight asking:  “what is she up to?”

14. Mrs Hart rejects Mrs Stariha’s contention that she was never told that a Frontline Recruitment Agency had been opened at the Gold Coast and then closed.  Mrs Hart says that in the October 2005 conversation she told Mrs Stariha that Hart Trading would be “re‑opening” the Gold Coast Agency and that in doing so Hart Trading would be operating “at the same location” from which Ellis Trading had conducted the undertaking, namely, Kaybank Plaza in Southport.  Mrs Hart also says this at para 78(d):

    In her performance at the Gold Coast, I was continually, in my conversations with Julianne, comparing her sales with the sales achieved by Niki when Niki had worked at the Gold Coast Agency.  During Julianne’s time at the Gold Coast Agency, we very often measured and discussed her sales performance verses the prior opening and we were both thrilled and impressed at the improved result she achieved.  For example, under Julianne, the Gold Coast Agency achieved a monthly average of $22,969 from 1 November 2005, when I re‑opened the Gold Coast Agency until 30 June 2006.  When compared with the previous monthly average of $11,483 under Ellis Trading, $22,969 was a terrific improvement. 

15. Mrs Hart says at para 78(c) that in October 2005 she told Mrs Stariha that in “re‑opening the Gold Coast Agency we were at the same location as when it was open under Ellis Trading – namely Kaybank Plaza in Southport”.  Mrs Stariha denies this statement was made to her in October 2005 or at all (para 19, Mrs Stariha’s further statement of 6 March 2012). 

16. Mrs Stariha accepted Mrs Hart’s offer of a position in the Gold Coast office with Hart Trading.  Mrs Stariha commenced work in the Gold Coast office on 7 November 2005. 

17. On 1 November 2005, Mrs Hart and Mrs Stariha signed a “Letter of Employment”.  By that letter, Mrs Hart said that she took pleasure in “confirming the following change in salary as at 07 November 2005”.  The letter continues to recite Mrs Stariha’s position as “Recruitment Consultant”, at a change in salary to $50,000 per annum excluding superannuation.  The letter recites a start date of 29 August 2005 with a probationary period of three months, although, of course, Mrs Hart gives evidence that she had only raised the question of Mrs Stariha transferring to the Gold Coast in the October 2005 conversation.  The letter continues to reflect Mrs Stariha’s initial commencement date of 29 August 2005 and the reference to the position of “Recruitment Consultant” presumably because that is when Mrs Stariha actually commenced employment, as a Recruitment Consultant, and the letter is reflecting what Mrs Hart, in an introductory way, simply described as a “change in salary” not a change in position.  In any event, the letter reflects a position description of “Recruitment Consultant” in the context of the new Gold Coast arrangements.  At para 80, however, Mrs Hart says that Mrs Stariha was initially employed on 29 August 2005 at an annual salary of $35,000 plus superannuation, and when she agreed to undertake the role at the Gold Coast, Hart Trading increased her salary to $50,000 per annum, plus superannuation, plus a commission on sales (placements) which was designed to reflect the “additional responsibilities assumed by her upon undertaking this role”.  Mrs Hart says (para 80) that in addition to her duties and responsibilities forming part of her role as a Recruitment Consultant, Mrs Stariha was responsible: 

    … for the general management of the Gold Coast Agency.  She was responsible for the placement of retail candidates with clients, business development, which included prospecting new business, achieving sales targets, achieving minimum KPIs, client and candidate care, and database record keeping.  I audited the performance of the Gold Coast Agency, and Julianne in turn rectified any discrepancies, and/or issues that arose. 

1. Mr Davis regarded the best information concerning the expenses that Mrs Stariha would incur in operating the franchise to be “a calculation of what the actual expenses were going to be” and that was the calculation that Mrs Stariha had conducted and presented to Mr Davis.  The quantum of the expense items in relation to the various categories of expenses Mrs Stariha had identified was a calculation Mrs Stariha had done and presented to Mr Davis (T, p 474, lns 24‑25; lns 34‑39). 

2. Mr Davis was asked a series of questions about the history of the franchises and details of the three franchisees which had traded in excess of three years as at the date of the Discovery Day presentations, one of them being the Brisbane franchise.  Mr Davis accepted that the TDR forecast he had undertaken was based on the sales reports for all of Queensland, all of Victoria and a part of New South Wales and the TDRs are intended to reflect or be a forecast or projection of income if the franchise is conducted according to the franchisor’s requirements, its processes and its KPIs.  The TDRs do not relate to expenditure.  Mr Davis gave evidence that Frontline had conducted in the 2006/2007 financial year a benchmarking study of expenditures for all its franchisees operating in that year.  It began at the beginning of that financial year and it was a process whereby Frontline obtained figures presented by franchisees of their expense performance and Frontline measured and assessed those expenditures. 

3. Mr Davis was asked a number of questions about aspects of the history he had recounted concerning particular franchisees.  Mr Davis was asked questions about the Aura matter.  Mr Davis accepted that the Aura matter was ultimately settled by a Deed of Release of 8 November 2006 (T, p 492, lns 22‑23). 

4. Mr Davis was taken to the 100% success rate assertion previously described.  Mr Davis did not accept that the assertion of a 100% success rate, as reflected on the website, from the relevant date was based on a principle adopted by Frontline that if TDRs are achieved, and the method of their achievement, means that a franchisee has a 100% success rate across the franchise chain.  Mr Davis said that the claim was referable to the fact that all agencies that Frontline had established up until that point in time were still operating and, secondly, that whenever someone had sold their agency they had sold it for more than they had paid for it.  The proposition was put to Mr Davis that that explanation of the claim did not appear in correspondence by Frontline by Mr Davis to the ACCC.  The notion in the letter was that the reference to a 100% success rate had been included on Frontline’s website based upon the principle that if a franchisee did particular things they could expect to enjoy a 100% success rate.  Mr Davis explained that his letter to the ACCC failed to identify the two factors informing the “100% success” assertion on the footing that Frontline did not have as one of its criteria a claim of a 100% success rate.  The proposition was put to Mr Davis that Frontline did adopt a criteria of having a 100% success rate because Frontline, through Mr Davis, had accepted that a claim had been made on the website of a 100% success rate and Mr Davis had sought to identify for the ACCC the “principle” upon which that claim would operate.  Counsel for Mrs Stariha pressed Mr Davis with the notion that the two integer qualification he had given in oral evidence had not been included in Mr Davis’s letter to the ACCC and, why might that be so.  Mr Davis was pressed with the notion that his letter to the ACCC was false and at the time that he signed it he knew it to be false.  Mr Davis did not accept that proposition and said that he did not know, at the time he sent the letter, what the 100% success rate claim was based upon.  Mr Davis said (T, p 494, lns 22‑25):

   When you look at the 100% success rate over a period of time, all our agencies were achieving TDR over the period of time at that point in time.  Just because they went under TDR for one year or two years, they had all recovered and were achieving TDR. … I think the response that we gave the ACCC in November 2009 was not reflective of what the 100% success rate was meant to be when it was originally put forward in the ad and the website. 

5. Mr Davis accepted that when he signed the letter to the ACCC in 2009, he “knew that the response was not reflective of what you say was the true position” (T, p 494, lns 33‑34).  Immediately after that question, Mr Davis was again asked whether at the time he sent the letter to the ACCC he knew what was set out in the letter was false and he said that he did not know it to be wrong at that time (T, p 494, lns 36‑39).  Mr Davis was pressed with the falsity proposition and said that the 100% success statement was a claim made by Frontline at the particular time.  Mr Davis accepted that he was aware of “the genesis” of it.  Mr Davis did not accept that the 100% success claim as explained in the letter to the ACCC was “not developed around TDRs”.  Mr Davis was asked why he had said it was so developed and answered “because I didn’t know what it was developed around”.  Mr Davis accepted that he did not speak to anyone before sending the letter to the ACCC.  Mr Davis said that at the time of sending his letter he knew that all of Frontline’s agencies, over the time of their operation, had achieved 100% success rate.  Mr Davis accepted that in his oral evidence he had said that the letter to the ACCC was not reflective of how the 100% success rate claim had been developed and he also accepted that if he knew at the time that the information in the letter was not reflective of the development of the claim, then it followed that what was being said to the ACCC was false (T, p 495, lns 40‑42).  This exchange then occurred (T, p 495, lns 44‑47):

   Q:       And you were content to send the ACCC a knowingly false explanation?

   A:       No, well …

   Q:       Weren’t you?

   A:       Yes. 

   PART 16 – CONCLUSIONS AND FINDINGS

6. I have dedicated considerable time to examining the primary evidence of the principal protagonists in this proceeding both in terms of their statements and counter‑statements and their cross‑examination as to the matters in controversy.  In this proceeding, it is fair to say that virtually every contention is met with a counter‑contention across the entire field of factual issues raised by the claims of the applicants. 

7. In these reasons, I have examined that evidence in detail but I do not propose to set out in these reasons the evidence of many of the other witnesses who were called in the proceedings.  They include the evidence of Mr Wallace, Mr Miller, Ms Briede, Ms Moseley, Ms Manwaring, Ms Austin, Ms Baird, Ms Flavell, Ms Butcher, Ms Wilson and other accounting evidence.  I have also had regard to the cross‑examination of these witnesses.  I can see no utility in reciting in these reasons the various points and counter‑points arising out of the evidence of these other witnesses.  Nevertheless, I have taken all of the material into account in reaching the conclusions determinative of the matter and in making findings. 

8. In some senses, Mrs Stariha’s success in the period between August and November 2005 and more particularly between 7 November 2005 and December 2006 is also the source of her potential problem.  Mrs Stariha was undoubtedly an energized, enthusiastic person who was very successful in these periods in generating placement income for Hart Trading.  The tenor of the emails generated by Mrs Stariha in the period from October to December 2006 reflect her clear enthusiasm to purchase the business.  Because Mrs Stariha had been successful and was intimately familiar with the placement revenues she had been generating, she was keen to purchase the business.  She had an understanding of the top line revenues because she was the prime mover in generating sales from the Gold Coast office and in substance and effect the only person generating placement income from clients on the Gold Coast. 

9. Plainly enough, Mrs Stariha wanted to understand the profitability of the Gold Coast business.  She had had a discussion with Mrs Hart on either 5 October or 6 October 2006 and on 13 October 2006 she received spreadsheets from Mrs Hart setting out income and expenses for the financial year ending 30 June 2006 and for a period in the financial year ending 30 June 2007. 

10. Mrs Stariha then began to investigate, very thoroughly, the field of potential expenses she would need to meet should she acquire the Gold Coast Agency and commence to operate it.  She took the spreadsheets sent to her on 13 October 2006 and revised them to capture in a revised spreadsheet the field of expenses she would expect to incur.  She also sought to identify the borrowing costs and other costs she might incur in financing an acquisition of the business by a debt facility through the ANZ Bank.  She also examined the income line in the spreadsheets and sought to adjust it by taking account of anomalies that she had identified by force of her own intimate understanding of the revenues generated from placement work done by her with Gold Coast clients and thus attributable to the Gold Coast Agency she could purchase. 

11. She then sent the revised spreadsheet to Mrs Hart and requested her to identify features of her analysis which appeared to be inaccurate.  Mrs Stariha had a conversation with Mrs Hart about that document.  Mrs Hart says that fundamentally, Mrs Stariha was taken up with concerns over the revenue line and was not so much concerned with the expenses.  Nevertheless, Mrs Stariha had done a lot of work to produce a field of expense items by category and also sought to identify through her discussions with Ms Moseley the quantum of the costs she could expect to incur by reference to the categories of expenses she had identified. 

12. Mrs Stariha says that Mrs Hart vouched for the accuracy of her analysis in the revised spreadsheet.  Mrs Stariha says that Mrs Hart assured her of the accuracy of her analysis and on the footing of that assurance she went forward with the purchase, the Bank arrangements and entry by Julstar into the franchise.  I am not satisfied that Mrs Hart represented to Mrs Stariha that the revised spreadsheet was accurate.  I have no doubt that Mrs Hart said that “it looked right” but this is a very long way away from representing that each of the items of expenditure in each of the categories is true and correct.  The document was not Mrs Hart’s document.  It was prepared by Mrs Stariha.  It was her own document.  Mrs Hart, of course, was familiar with the management and operation of the integrated franchise consisting of Brisbane and the Gold Coast but she could not be expected to be carrying in her mind every item of expenditure under every category in Mrs Stariha’s spreadsheet on the footing that in a discussion with Mrs Stariha a remark to the effect that the revised spreadsheet looked right, carried with it a warranty or assurance as to the accuracy of the content of the revised spreadsheet as formulated by someone else.  Mrs Hart said she did not see it as her job to verify Mrs Stariha’s revised spreadsheet.  Mrs Hart invited Mrs Stariha to let Ms Hutt, the bookkeeper, have a look at the figures.  A reflective useful verification of the revised spreadsheet might then have occurred and it may have revealed anomalies, or not.  In any event, Mrs Stariha chose not to go down that path. 

13. Mrs Stariha chose to act on the response she says she received from Mrs Hart.  I find that Mrs Hart did not warrant the accuracy of the revised spreadsheet.  I find that at its highest, Mrs Hart said that the revised spreadsheet looked accurate.  Mrs Hart’s remark rises no higher than that. 

14. I am not satisfied that Mrs Hart described the franchise as a cash cow or that the franchises were highly profitable. 

15. In any event, the question of the profitability of the franchise, as it might exist as a separate Gold Coast Agency was the subject of an analysis by Mrs Stariha of her perception of the revenue and her assessment of the likely categories of costs and the quantum of those costs that would be attributable to a stand‑alone operation. 

16. I find that Mrs Stariha relied upon her own analysis in reaching a conclusion about the profitability of the business and the acquisition.

17. I will return to other aspects of the engagement between Mrs Stariha and Mrs Hart as to profitability in a moment. 

18. The next feature of the evidence which causes me concern is the notion that Mrs Stariha had no understanding, according to her evidence, that a Frontline Retail operation had been opened and conducted by Ellis Trading on the Gold Coast in an earlier period which had come to an end by December 2004.  Mrs Hart says that she talked about that earlier period and the trading experience quite extensively with Mrs Stariha.  Mrs Stariha says she knew nothing of it and had she known of it, she wouldn’t have gone ahead with the acquisition.  I find that Mrs Stariha went ahead with the purchase fundamentally because of her enthusiasm for the purchase, because of her experience in seeing the revenue generation and based upon her own analysis of the likely expenses.  However, apart from that, I find it almost inconceivable that Mrs Stariha did not know that Ellis Trading had been operating a Frontline Retail placement business on the Gold Coast prior to Mrs Hart’s acquisition of the Brisbane/Gold Coast franchise from Hart Trading.  Well before Mrs Stariha purchased the Gold Coast franchise, she had been engaging with individuals who had been working for Ms Karen Ellis in the Ellis Trading Gold Coast office.  In these reasons I have set out the evidence of Ms Diane Knight and Ms Knight’s engagement with Mrs Stariha. 

19. Although in relation to aspects of Mrs Stariha’s evidence there was a real possibility that she has come to passionately believe in the truth of the version of the events she propounds, I am not satisfied that there is very much room for accepting that Mrs Stariha has come to believe that she did not know of the Frontline Retail operation conducted on the Gold Coast by Ellis Trading through the recruiters consisting of Ms Diane Knight and also Ms Nikki Garnet‑Palmer.  I find that Mrs Stariha knew well before the purchase of the Gold Coast Agency that Ellis Trading had conducted a Frontline Retail operation on the Gold Coast and that Ellis Trading had ceased to operate that business at some point in time prior to Mrs Stariha commencing employment in August 2005 with Hart Trading. 

20. Mrs Stariha says that at the meeting on 5 October or 6 October 2006, Mrs Hart gave her two spreadsheets which in Mrs Hart’s view would have to have been the spreadsheets Mrs Hart took to the meeting which, in turn, were the spreadsheets Ms Price formatted from the MYOB printout and provided to Mrs Hart.  The evidence suggests, however, that the more likely position is that Mrs Hart did not give those spreadsheets to Mrs Stariha but that Mrs Stariha was, indeed, sent spreadsheets on 13 October 2006.  The more likely position is that Mrs Stariha has come to believe, quite genuinely, that the spreadsheets she identifies as those which were given to her at the meeting, which she calls the initial meeting, were in fact spreadsheets sent to her on 13 October 2006 and which she placed in her “purchase box”.  It is more likely that when Mrs Stariha came to examine the materials relating to her interaction with Mrs Hart and Mr Davis concerning the purchase, that she understood and believed the spreadsheets from 13 October 2006 were the spreadsheets Mrs Hart took to the meeting on either 5 October or 6 October 2006.

21. That likely position on the facts is supported by recognising that the spreadsheets sent by Ms Price to Mrs Hart did not contain entries for October 2006 whereas the spreadsheets sent on 13 October 2006 contained placement entries for October 2006, by then. 

22. Mrs Stariha is extremely confident that she was handed spreadsheets at that meeting and Mrs Hart is equally confident that she did not hand Mrs Stariha spreadsheets at that meeting.  Each witness has their own basis for that position.  Mrs Stariha says her recollection is clear about it.  Mrs Hart says that she retained the two documents because she made notes on them.  Mrs Stariha says Mrs Hart made notes in her diary. 

23. In any event, I am satisfied that the more likely position, and I so find, is that Mrs Hart took spreadsheets sent to her by email by Ms Price to the meeting and retained them.  I find that spreadsheets were first sent to Mrs Stariha on 13 October 2006 and, using those spreadsheets, Mrs Stariha set about examining the accuracy of the revenue line according to her own knowledge of the placement income and set about making enquiries as to the categories and quantum of expenses that would need to be built into an understanding of profitability. 

24. That raises the question of the factual elements of the case going to the profitability representations.  In a nutshell, Mrs Stariha says that she was told that the profitability for the Gold Coast part of Hart Trading’s operation was $80,000 and that the purchase price had been determined by applying a multiplier of three to the EBIT calculation thus generating a purchase price of $240,000.  Mrs Hart strongly denies that representation and sets out in some detail the basis upon which she came to a calculation of the purchase price.  There is no doubt that Mrs Hart’s previous experience had been that the purchase price from Ellis had a relativity with three times EBIT earnings and Mr Davis had told Mrs Hart that she could reasonably look to a multiple of between two and three to calculate the value of the business.  Mrs Hart, in the course of her cross‑examination, recognised the commercial position that she was on the one hand selling the business to Mrs Stariha for a Gold Coast territory at $240,000 and on the other hand she had only 12 months earlier, purchased a conjoint franchise for the Gold Coast and Brisbane for $320,000 recognising, of course, that the valuable or lucrative part of that acquisition related to the Brisbane business. 

25. Mrs Hart says that the business is worth what the business is worth based on arms‑length negotiations between a willing buyer and a willing seller having regard to the earnings for the business.  In the period between August 2005 and November 2006 but particularly 7 November 2005 to November 2006, Mrs Stariha had been responsible for generating a very substantial volume of placement business from Gold Coast clients.  Oddly enough, she had created the value in that part of the business that she was now buying and the purchase price would be based upon a relativity between the EBIT as formulated by Ms Price in the spreadsheet based upon Ms Hutt’s MYOB coded entries and a multiple of those EBIT earnings. 

26. The spreadsheets sent by Mrs Hart to Mrs Stariha on 13 October 2006 do not suggest EBIT earnings of $80,000 and the spreadsheets given to Mrs Hart by Ms Price for the early October meeting do not suggest EBIT earnings of $80,000.  There is no communication from Mrs Hart to Mrs Stariha suggesting, in terms, EBIT earnings of $80,000 in the Gold Coast Agency and there is no email from Mrs Stariha to Mrs Hart on receipt of the 13 October 2006 spreadsheets saying something to the effect of “those spreadsheets are interesting but they are fundamentally flawed because they do not show the EBIT earnings of $80,000 as you have suggested to me”.  Mrs Stariha conducted her revision of the spreadsheets and in doing so she identified four months where there were anomalies in the revenue (which Mrs Hart acknowledges) and she formulated her assessment of the categories of expenses and the relevant quantum of expenses for each category.  That led Mrs Stariha to a view about profitability reflected in her revised spreadsheet.  Mrs Hart says that the profitability in the Gold Coast Agency, as far as she was concerned, was the profitability reflected in the spreadsheets presented to her by Ms Price and as ultimately revised and sent to Mrs Stariha.  Mrs Hart took the profitability figure of about $50,000, added the director’s wages and multiplied it by three.  She says she applied a discount to it because it seemed excessive and it seemed to be more than she would have been willing to pay herself. 

1. In the absence of contemporary documents asserting the claim of an $80,000 EBIT or documents over time (but prior to the claim itself) asserting a representation to this effect, I am not satisfied that Mrs Hart made a representation that Mrs Stariha should proceed on the footing that the EBIT earnings of the Gold Coast Agency were, or would be, $80,000 and I so find. 

2. As to the question of “would be”, I am not satisfied that Mrs Hart made a representation as to the future profitability of the Gold Coast Agency.  I am satisfied that Mrs Hart said that the business would go well or that she had confidence that it would go well or a belief in its success but expressing such a belief is well short of a representation that the business was and would be “highly profitable” or that the business was “a cash cow”. 

3. The other aspect of this predictive representation Mrs Stariha asserts is that in the course of cross‑examination, Mrs Stariha departed from the contention that a specific representation as to profitability had been made in the terms asserted.  She rather moved her ground to suggesting that it was a necessary inference that the Gold Coast Agency was and would be highly profitable because she had been told by Mrs Hart that the business generated $80,000 of EBIT earnings.  Ultimately, when pressed to identify the precise words, Mrs Stariha reasserted her original position but the truth of the matter is she has drawn inferences from something else which she says was said.  However, I am not satisfied that a representation was made that the business would generate $80,000 in EBIT earnings. 

4. Although emphasis is placed by the respondents on the documents put to the ANZ Bank and Mrs Stariha’s representation that the profit and loss spreadsheet data was given to her by the vendor, Hart Trading, I attach less significance to those statements than the respondents invite.  Plainly enough, the spreadsheet was not done by the vendor but the spreadsheet does reflect a revision put to the vendor by Mrs Stariha on the footing that it reflected the earnings she understood had been generated from the Gold Coast activities under her period of involvement and the expenses as she understood them to be based upon her forensic enquiries.  Mrs Stariha had put that document to Mrs Hart and was in the course of seeking to speak to her about it.  Plainly enough, the application to the ANZ Bank could have recited that the revised spreadsheet had been formulated by Mrs Stariha but it was the outcome of a process of investigating the actual revenues in the historical period and Mrs Stariha’s perception of the likely actual expenses. 

5. I am more troubled by Mrs Stariha’s arrangements with Mr Fitzpatrick to secure payment to Mrs Stariha of placement revenues which were actually payable to FRGPL and ultimately never reimbursed to FRGPL by Mrs Stariha. 

6. As to the position in relation to the contentions advanced against Mr Davis and FRGPL, I accept the evidence of Mr Davis.  I am not satisfied that Mr Davis made the representations which are attributed to him.  I am satisfied that Mr Davis had no particular financial interest in securing a sale to Mrs Stariha.  I accept that Mr Davis viewed Mrs Stariha as something in the nature of a star performer and no doubt he would have wished to have her within the franchisee cohort.  However, his view was that whether the Gold Coast Agency was run by Mrs Hart or Mrs Stariha it would be successful and in the end result the franchisor would receive a modest amount of $10,000 as a result of processing the sale of the Gold Coast franchise to Mrs Stariha and facilitating Julstar’s entry into the franchise.  I am satisfied and find that Mr Davis actually preached a cautionary approach to Mrs Stariha.  I am satisfied that Frontline’s revenue expectation for Julstar was the first year revenue expectation and not a second year $240,000 revenue expectation.  I am also satisfied that Mr Davis told Mrs Stariha about the Aura proceedings particularly having regard to the fact that the incoming buyer, Mr Sher, was in the next room undertaking training and that the probability is that Mr Sher’s entry into the franchise cohort for Sydney would have been talked about and the contextual circumstances which led to the sale of the franchise would have been talked about. 

7. It is perfectly true that Mr Davis admitted in the course of pressing cross‑examination to formulating an explanation of the “100% success rate” entry on the website (well after Mrs Stariha entered into her arrangements), which failed to contain the two qualifications he identified in his oral evidence and which led him to be confronted with the proposition that his letter to the ACCC was incorrect and moreover, he knew it to be incorrect at the time it was sent. 

8. I do not accept that the content of the formulation of that letter and the concession that the qualifications he identified failed to find expression in the letter is a foundation upon which it is proper, as a question of credit, to overwhelm the evidence generally that Mr Davis has given.  I found Mr Davis to be an impressive witness and although I do not believe that the resolution of the factual controversies in this case turns upon impressions of the witnesses in the witness box, I did not find Mr Davis to be a witness who obfuscated answers to questions.  Nevertheless, the real question here is whether the oral versions of the events of Mrs Stariha can be preferred to those of Mr Davis. 

9. I am satisfied that Mr Davis’s version of the events is the correct version. 

10. I am satisfied that Mrs Stariha on 6 November 2006, was given the range of briefings he describes and that all of the content he describes was content delivered to Mrs Stariha. 

11. I am satisfied that Mrs Stariha was told, knew and understood the replacement protocol and that Frontline did not adopt a position of giving strict force to the performance of the replacement obligation on the footing of a seven day payment by the client.  The notion in the evidence that Frontline would probably have no clients if it strictly enforced that term, recognising that a 90 day replacement period is orthodoxy in the industry, seems to me an entirely plausible commercial position that a franchisor would adopt.  The other difficulty with Mrs Stariha’s propositions about her particular understanding of the seven day payment/replacement matter is that she contends that she was raising her concerns about these matters orally “throughout” with Ms Moseley and Mr Davis.  Yet, there is no written exchange or email exchange by which she expresses her concerns.  Her failure to reduce that concern to writing is, it seems to me, only consistent with the notion that she knew and understood that the prevailing commercial protocol was that Frontline did not insist upon strict compliance with the seven day payment term as an answer to refusing to perform or discharge a replacement obligation. 

12. I am led to the conclusion that Mrs Stariha simply did not believe the position she contended for to be true. 

13. As to the hospitality arrangements, the odd thing at the outset about the hospitality arrangement is that Mrs Stariha entered into the Frontline franchise and then quite quickly agitated strongly with Frontline and Mr Downer to take up a franchise for Far North Queensland.  This does not seem to be the conduct of a person who is concerned about having been led into the operation of a business on the footing of misrepresentations about EBIT earnings and returns.  Having failed to secure that territory, Mrs Stariha then took up a hospitality franchise, approximately seven months after trading in the retail franchise.  Again, Mrs Stariha has embraced striking a new franchise arrangement, through Semolina, with some of the same group of individuals, so far as FRGPL is concerned, that she had been dealing with in respect of which she says she was led into a retail franchise at an overvalue and one which was not ever profitable. 

14. I accept the evidence that Mrs Stariha was historically interested in hospitality businesses which is apparent from her CV and I accept that when discussing the possibility of a hospitality franchise she expressed the view that she was interested in or passionate about hospitality.  However, it seems to me that Mrs Stariha, on all the evidence, was keen to take up a second franchise and when the Far North Queensland possibility fell away she became interested in the hospitality franchise no doubt because she has an interest in hospitality and also because the franchise related to the territory in which she was then operating, namely the Gold Coast. 

15. However, I am not satisfied that Mrs Stariha was led into taking up the hospitality franchise in the way she claims based on the representations she asserts.  I do not accept that representations were made to her to the effect that no franchisee had failed or that the franchises were highly profitable.  When it comes to a contest of evidence between Mrs Stariha and either Mr Downer or Mr Davis, I am satisfied that the version of events given by both Mr Davis and Mr Downer is to be preferred.  I also find that the evidence of Mrs Hart is to be preferred to that of Mrs Stariha. 

16. I also find it odd that after a period in which Mrs Stariha had been operating the retail business and then the hospitality business, which might be regarded as an objectively reasonable period for a new operator to come to grips with the realisation that the businesses were not profitable in the way she imagined based upon “things” said to her, no complaint is made in emails or correspondence about those matters.  By then, it may well have been too late to seek to set aside entry into those businesses but it is odd that Mrs Stariha was not propounding in writing her contentions about the conduct with Mrs Hart, Mr Davis and Mr Downer. 

17. Mr Stariha has given evidence in support of a number of matters contended for by his wife.  His evidence, without disrespect to him, is a little detached because he simply was not sufficiently engaged with things such as what documents were in the mail or what documents may have been opened over dinner one night or such matters.  He is not sufficiently familiar with what may or may not have been taken to the lawyers.  He is more focused about the question of his enquiries at the Discovery Day and I accept that Mr Stariha expressed apprehension about the uplift thresholds in revenue requirements under the Franchise Agreement.  However, the difficulty is that although Mr Stariha was concerned about the uplift, I am not satisfied that the income requirement for the first year was to be $240,000.  That was a requirement which would have applied to the second year and I am not satisfied that the evidence is that Mrs Stariha would be regarded as anything other than a first year franchisee for the purposes of the new Franchise Agreement. 

18. It follows from my analysis of all of this evidence, all of which I have weighed carefully due to the deeply entrenched contest on all matters, and the conclusions I am led to by the evidence, that Mrs Stariha’s claims against the respondents must fail and thus the claims of the applicants must fail. 

19. There is one remaining matter that needs to be addressed and that relates to the claim by the applicants of a breach by FRGPL of the “Franchising Code of Conduct”. 

20. Like so much of the evidence in this case, there is confusion about when Mrs Stariha or Julstar, received a Disclosure Document from the franchisor.  Mrs Stariha strongly believes that she received two versions of the Disclosure Document and she puts into evidence as Exhibit 3 the documents she says she received in October 2006.  Ms Briede sent Mrs Stariha a Disclosure Document on or about 23 November 2006 and Mrs Stariha signed a receipt document on 24 November 2006 acknowledging receipt of the Disclosure Document.  The version of Exhibit 3 is called “Version 10”.  The document was at one point spirax bound but the spirax binding no longer exists.  Plainly enough, it was once a bound document that must have been sent to her rather than downloaded from an email attachment. 

21. Although Mrs Stariha strongly believes that she received Exhibit 3 in October 2006 and a second document on 24 November 2006, it seems to me that the more compelling evidence is that Mrs Stariha believes that position to be true but is confused because of the references to a non‑disclosure agreement in the earlier exchanges. 

22. The more likely position on the evidence is that Exhibit 3 is the document that Mrs Stariha received by courier or post on 24 November 2006.  There have been a number of versions of the Disclosure Document and relevantly for present purposes they are Versions 8, 9 and 10.  Version 8 is a version as at September 2005.  Version 9 is a version at September 2006 and Version 10 is a version at November 2006.

23. In Version 8, under cl 4 in relation to litigation, there is no reference to any particular proceedings.  In Version 9 at cl 4, reference is made at cl 4.1 and cl 4.3 to Frontline having served breach notices upon a franchisee and the franchisee having sought an injunction against the franchisor.  The entries under cl 4 make reference to a claim by the franchisee for damages and for unconscionable conduct in withholding particular commissions. 

24. By Version 10 at November 2006, the references to that litigation are deleted and the document recites that there are no current proceedings, civil or criminal involving the franchisor. 

25. The claims made by the franchisee recited in Version 8 of the Disclosure Document were settled and resolved in November 2006 and were the subject of a Deed of Release dated 8 November 2006.  By then, the proceeding was no longer on foot.  It was fully settled and compromised. 

26. At the moment in time when Mrs Stariha received the Disclosure Document on or about 24 November 2006 it was not material to recite in that document references to the historical claims and cross‑claims which by then had been resolved, and I so find. 

27. I find that there was no breach of cl 18 of the Franchising Code of Conduct or any other clause of that Code and thus there was no breach of s 51AD of the Trade Practices Act 1974 (Cth).

28. Accordingly, the claims based on a contended contravention of the Franchising Code of Conduct must be dismissed. 

29. Having regard to the conclusions I have reached, it has not been necessary to assess the measure of the loss contended for by the applicants.  However, in principle, I accept that the expenditures about which Mr and Mrs Stariha have given evidence were incurred in furtherance of entering into each of the franchise arrangements.  However, for the reasons already indicated, the causes of action upon which they rely in seeking remedial relief must necessarily fail. 

I certify that the preceding seven hundred and eighty‑four (784) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Associate:

Dated:       12 December 2013