Klages v Walker
[2007] FMCA 2056
•10 December 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KLAGES & ORS v WALKER & ANOR | [2007] FMCA 2056 |
| TRADE PRACTICES – Misleading and deceptive conduct – whether written and oral representations were made – by whom representations made – whether representations misleading and deceptive – whether representations as to future matters – whether reasonable grounds for future matters representations – contraventions – involvement in contraventions – damages for trade practices breaches – damages for lost opportunity – rescission of loan agreement. |
| Trade Practices Act 1975 (Cth) ss.51A, 52, 75B, 82 |
| ACCC v Dataline.Net.Au [2006] FCA 1427 Allen, Allen’s Dictionary of English Phrases (Penguin: London, 2006) |
| First Applicant: | KLAGES PTY LIMITED |
| Second Applicant: | ADAM KLAGES |
| Third Applicant: | SCHAFER HOLDINGS PTY LTD |
| Fourth Applicant: | CHRISTOPHER JOHN MOODY AS TRUSTEE FOR THE MOODY FAMILY TRUST |
| First Respondent: | DUNCAN ALLISTER WALKER |
| Second Respondent: | SHERINGHAM WA PTY LTD AS TRUSTEE FOR THE WALKER FAMILY TRUST |
| File Number: | PEG 260 of 2005 |
| Judgment of: | Lucev FM |
| Hearing date: | 12, 13 & 14 December 2006 |
| Date of Last Submission: | 14 December 2006 |
| Delivered at: | Perth |
| Delivered on: | 10 December 2007 |
REPRESENTATION
| Applicants: | Mr D C Robinson |
| First Respondent: | Mr D A Walker in person |
| Second Respondent: | No appearance |
ORDERS
The Applicants to prepare, file and serve a Minute of Proposed Orders to accord with these the Reasons for Judgment delivered 10 December 2007, by 4:00pm on 14 December 2007.
(a) The Applicants and Respondents are to discuss the Minute of Proposed Orders by 4:00pm on 18 December 2007 and use their best endeavours to reach agreement on the terms of the Minute of Proposed Orders.
(b)If the Applicants and Respondents reach agreement on the terms of the Minute of Proposed Orders that Minute must be signed by the Applicants and Respondents and filed as a draft consent order under rule 13:04 of the Federal Magistrates Court Rules, 2001 (Cth).
Otherwise, the matter is adjourned to 10:15am on 20 December 2007.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 260 of 2005
| KLAGES & ORS |
Applicants
And
| WALKER & ANOR |
Respondents
REASONS FOR JUDGMENT
Introduction
There are four applicants in this matter: Klages Pty Ltd, Adam Klages, Schafer Holdings Pty Ltd and Christopher John Moody as Trustee for the Moody Family Trust.[1] There are two respondents, Duncan Alister Walker and Sheringham Pty Ltd as Trustee for the Walker Family Trust.[2]
[1] Unless otherwise noted the applicants are either referred to collectively, or as Klages, Schaffer and Moody.
[2] Referred to collectively as the respondents, otherwise as Walker and Sheringham.
Stripped to its essentials the applicants assert that the respondents engaged in misleading and deceptive conduct upon which the applicant’s relied in entering into franchise agreements with Sheringham (trading as Etchguard (WA)) under which the applicants as franchisees were entitled to appoint fixed and mobile sub-franchisees. The franchise business was the business of etching vehicles as a means of theft prevention.
Issues
The following issues require determination in this matter:
a)whether:
i)written; and
ii)oral,
representations were made to the applicants by the respondents;
b)whether any:
i)written; or
ii)oral,
representations made were misleading or deceptive;
c)whether the applicants were engaged in trade and commerce;
d)whether the representations made were as to future;
e)whether reasonable grounds for the making of the future representations have been demonstrated, and whether evidence of reasonable grounds has been adduced;[3]
[3] TP Act, s.51A(2).
f)which persons were involved in any contravention of the TP Act;[4]
g)whether compensation is payable for loss and damage arising from any misleading or deceptive conduct, including damages for loss of opportunity as a consequence of the sale of an investment property;
h)whether a loan agreement ought to be rescinded;[5] and
i)whether the respondents are liable in negligence to the applicants, and in particular:
i)whether a duty of care was owed by the respondents to the applicants;
ii)whether any duty of care owed was breached;
iii)whether loss was suffered if the duty of care was breached, and if so, how damages are to be assessed, and the quantum of damages.
Representations
[4] TP Act, s.75B for the purposes of the claim under TP Act, s.82.
[5] TP Act, s.87.
Alleged written representations
The following are the written representations said to have been made by the respondents:
a)existing franchisees in Victoria had turnovers of up to $500,000 in their first year of operation;[6]
b)mobile and fixed franchisees might reasonably expect to work and earn an income of $100,000 a year gross;[7]
c)a thirty percent commission on the sale of consumables might be earned by mobile and fixed franchisees;[8] and
d)franchisees who worked full time could reasonably expect:
i)to process ten to fifteen cars a day at $40.00 a car, with materials costs of $4.00 a car;[9] and
ii)earn $400.00 plus a day.[10]
[6] Trial Bundle at 137; Transcript at 137.
[7] Trial Bundle at 138.
[8] Trial Bundle at 137.
[9] Trial Bundle at 115.
[10] Trial Bundle at 115.
Alleged oral representations
The oral representations said to be made by the respondents were:
a)that the business was a bread and butter business;[11]
b)that Walker had been to Melbourne and seen the business successfully in operation;[12] and
c)that seventy mobile franchisees in a franchise area were viable.[13]
[11] Defence paras. 5.6; 17.2 & 29.2; Walker’s Affidavit, paras. 60.5, 70 & 77.
[12] Walker’s Affidavit, para. 60.6.
[13] Defence at paras. 5.7 and 33.3.
Were the representations made by Sheringham?
Sheringham has not defended the applicant’s claims. It is deemed to have made the representations pleaded.[14]
[14] McInnis v The Queen (1979) 143 CLR 575.
Were the representations made by Walker?
Klages, Schafer and Moody were not cross examined on their evidence that the representations were made, as pleaded.
In so far as Walker disputes that the representations were made this was not put to the applicants. In those circumstances, it is open to the Court to accept the applicants’ evidence,[15] unless it is inherently incredible, although the Court need not do so if the evidence not cross-examined on is contradicted by other evidence.[16]
[15] Browne v Dunn (1893) 6 R 67; Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 22-23 per Hunt J. See also McInnis v The Queen (1979) 143 CLR 575, applying the rule in Browne v Dunn to self represented parties.
[16] Bulstrode v Trimble [1970] VR 840 at 848-849 per Newton J; Reid v Kerr (1974) 9 SASR 367 at 375 per Wells J; Precision Plastics Pty Ltd v Demir (1975) 132 CLR 362 at 371. See generally, Heydon, Cross on Evidence (Seventh Australian Edition), (Chatswood: LexisNexis Butterworths, 2004) at pp.542-544.
Walker does not dispute that representations were made that:
a)the business was a bread and butter business;[17] and
b)that he had been to see the business in operation in Melbourne.[18]
[17] Transcript at 81.
[18] Transcript at 81.
Walker conceded that by the business being a bread and butter business he meant it was a business that would generate income and put bread and butter on the table.[19]
[19] Transcript at 66.
As to the alleged representation that seventy mobile franchisees in each area were viable, Walker’s Defence, his Affidavit and his cross examination gave rise to contradictory evidence:
a)at times admitting making the representation of viability of seventy mobile franchisees per area;[20]
b)at other times denying making the representation of viability of seventy mobile franchisees per area,[21] but admitting a representation as to the viability of seventy franchisees per area (without distinguishing between fixed and mobile franchisees); [22] and
c)preparing a business plan for the sale of the sub-franchises providing for seventy-two mobile franchisees per area.[23]
[20] Defence at paras. 5.7 and 33.3. Transcript at 67 where Walker goes so far as to say that the statement in his affidavit denying the making of this representation to Klages is “probably an error.” Transcript at 82 admitting that he told Moody that seventy mobile franchisees per area were viable.
[21] Walker’s Affidavit at para. 60.7. Transcript at 88 where Walker denies that he told Moody that seventy mobile franchisees per area were viable.
[22] Transcript at 73-75 and 115.
[23] Trial Bundle at 475; Transcript at 77.
The allegation that Walker made the representation that seventy mobile franchisees per area were viable was supported by:
a)A business plan suggesting that Sheringham would appoint seventy two mobile franchisees per area in Western Australia;[24] and
b)an admission that Walker had been told by Crichton, a Victorian head franchisee, that Crichton had more than seventy franchisees per area.[25]
[24] Trial Bundle at 475.
[25] Transcript at 74-75.
The allegations that Walker represented that the business was successful are supported by:
a)the use of the word “successfully” by Walker in relation to the trading operation of the business in Victoria;[26]
b)Walker’s admission that he told Klages that he (Walker) had been to Melbourne and the business “appeared to be successful”;[27]
c)Klages’ unchallenged evidence that Walker told him that head licensees were “easily earning” $8,000 per week, and that within a couple of months were recouping their initial investment;[28]
d)Walker’s admissions that he had placed advertisements in the West Australian between January and March 2003 concerning a “successful” business, with cash flow of “up to $8,000 plus a week” with recovery of initial investment within two months;[29] and
e)similar written representation that franchisees in their first year would be earning up to $500,000,[30] and oral representations to similar effect said to have been made by Walker to Schafer
[26] Trial Bundle at 136; Transcript at 72.
[27] Transcript at 81.
[28] Klages Affidavit.
[29] Trial Bundle at 201.
[30] Trial Bundle at 137; Transcript at 65.
Having regard to:
a)the unchallenged evidence of Klages, Moody and Schafer as to the representations;
b)the consistency between a number of the alleged written and oral representations, and written documentation contemporaneous with oral representations similar in effect to the written documentation;[31]
c)Walker’s evidence often being contradictory and vague;[32]
d)that Walker was often evasive as a witness in relation to alleged representations and statements;[33]
e)the extent of the conflict between the evidence of Walker and the applicants as to whether representations were made, or not, or what representations were made or not;
f)persons upon whom Walker “relied” to support the representations were not called,[34] and thus an inference can be drawn that their evidence would not have supported Walker’s case;[35] and
g)the fact that Sheringham did not contest that the alleged representations were made, and that Walker was the sole director of Sheringham;[36]
the Court has concluded that:
h)where Walker’s evidence as to the representations conflicts with the evidence of other witnesses, the evidence of the other witnesses as to those representations is to be preferred; and
i)the representations as pleaded by the applicants were made by Walker.
[31] See, for example, Transcript at 71 and 80.
[32] See, for example, Transcript at 67, 82 and 88 for his evidence with respect to the viability of seventy mobile franchisees per area (set out in more detail at para. 11 and footnotes 20-23 above), and Transcript at 68 where he says that “[e]asily achievable” and “possible” are “much the same thing” when referring to representations concerning possible sales incomes of $100,000.00 a year.
[33] See, for example, Transcript at 63 (concerning years of sales and marketing experience);123 (limited understanding of “full disclosure”); 65-66 (as to whether he told Klages that the business was a “bread and butter business”); 123-124 (representations re daily car processing and earnings). So apparent was this trait that both the Court and Counsel for the applicants warned Walker during his evidence about the need to answer the question asked, and the impact it might have on his credit if he did not: see Transcript at 122 and 123.
[34] Specifically Messrs Crichton, Delianos and Harrison. Walker rang Delianos and Harrison and they “declined to get involved”: Transcript at 132.
[35] Jones v Dunkel (1959) 101 CLR 298.
[36] Transcript at 69.
Were the representations misleading and deceptive?
The representation that existing licensees in Victoria had turnovers of up to $500,000.00 in their first year of operation was manifestly misleading and deceptive. Walker admitted that he did not see any objective evidence that anybody was even earning $50,000.00, let alone $500,000.00, and ultimately admitted, voluntarily, that he ‘didn’t see any evidence at all” of earnings,[37] and had no information to substantiate the figures in the representations.[38] That is not surprising given that the due diligence check by the respondents of Etchguard’s operations consisted of an overnight visit by Walker to Melbourne, during which he did not see any books of account, but took what he was told by Delianos, Harrison and Crichton at “face value”.[39] Crichton, upon whose apparent “success” Walker placed much reliance when seeking to justify the representations generally was someone he did not actually meet personally,[40] and of whom he knew little.[41] Desperately, when litigation was foreshadowed, Walker wrote seeking information, in the form of a statutory declaration “from anybody over east showing that they have made the sort of income claimed” because “unless I can prove what I have said to be true, I do not seem to have much of a case.”[42] No reply or statutory declaration in the form sought is in evidence. Critically, the business plan prepared in November 2002 by Walker only projected sales of $118,787.00 for franchisees after the first year of operation.[43] Ultimately, the representations as to turnover in the first year of operation amounted to optimistic mathematical projections with no foundation in fact.
[37] Transcript at 134.
[38] Transcript at 122. See also Transcript at 119, and 124 (unable to verify the accuracy of information at Trial Bundle 137).
[39] Transcript at 94.
[40] Transcript at 95.
[41] Transcript at 74: “I believed Mr Creighton [sic] was successful, that’s all I knew about.”
[42] Exhibit A11, email from Walker to Stott, 7 March 2004.
[43] Transcript at 89; Trial Bundle at 491.
The representation that mobile and fixed franchisees might reasonably expect to work and earn an income of $100,000 a year gross was misleading and deceptive for the same reasons as the representations as to turnover in the first year of operation. Further, the business plan prepared by Walker in November 2002 suggested profits of approximately a third and less of the income figure, and were not disclosed to prospective sub-franchisees.[44]
[44] Transcript 89-90 and 93; Trial Bundle at 491.
The representation that a thirty percent commission on the sale of consumables might be earned by mobile and fixed franchisees was not of itself misleading or deceptive. Had consumables been sold there is no reason to doubt that commission at that rate would have been paid. The problem with the representation is that no-one in Western Australia was making any sales, or any sales to speak of,[45] and that it was a significantly lower commission than that paid in Victoria (where fifty percent commission was paid on consumables)[46] for areas with larger populations,[47] and thereby any reliance placed on it in the formulation of a representation by the respondents was inherently unreliable and unreasonable.
[45] See the more detailed discussion on sales in Western Australia at para. 18 below.
[46] Transcript at 116.
[47] Transcript at 117.
The representations that franchisees who worked full time could reasonably expect:
a)to process ten to fifteen cars a day at $40.00 a car, with materials costs of $4.00 a car; and
b)earn $400.00 plus a day,
were made to Schafer and Moody in April and May 2003 when six cars had been etched and paid for, and a total of $250.00 had been earned, by all franchisees in Western Australia up to April 2003;[48] and:
c)Klages had been operating throughout the period from February to May 2003 without making a single sale;[49] and
d)when the representations were made to Moody, Schafer had been operating for a month without making a single sale.[50]
The representations were false, and therefore misleading and deceptive.
[48] Transcript at 123.
[49] Transcript at 124.
[50] Transcript at 124.
The representation that the business was a bread and butter business was a representation, as stated above, that it “was a business that would generate income and put bread and butter on the table”.[51] The common meaning of “bread and butter” in this sense is the “means of living”[52] or “what one lives on, one’s livelihood”.[53] Again, for similar reasons to those set out above with respect to the financial representations, this representation was misleading and deceptive.
[51] See para. 9 above.
[52] The Shorter Oxford English Dictionary on Historical Principles, Volume 1 (Oxford: Oxford University Press, 1973) at 232.
[53] R. Allen, Allen’s Dictionary of English Phrases (Penguin: London, 2006) at 105.
The representation that Walker had been to Melbourne and seen the business “successfully” in operation was simply untrue on the evidence of his overnight visit.
The representation that seventy mobile franchisees in a franchise area were viable was based, seemingly, on what Walker was told, particularly by Crichton who he never met personally, about the running of Etchguard franchises in Victoria. Quite why Walker placed such belief in Crichton was never explained, beyond Walker repeating, numerous times, that he believed Crichton was, on Crichton’s own say so, “very successful”, but that Walker had “no way of verifying that”.[54] Ultimately, Walker conceded he did not have evidence “of any particular person” who had been a successful franchisee or sub-franchisee.[55] Further, the evidence was that Walker or Sheringham was only able to appoint “three or four” mobile and fixed franchisees,[56] and that the business plan prepared by Walker in November 2002 provided for only thirty-six mobile franchisees, a fact not disclosed to prospective sub-franchisees.[57]
[54] Transcript at 130. See also, for example, Transcript at 73, 74, 75, 111, 114, 121, 133 (sometimes Walker also refers to the success of Delianos and Harrison as well – at 114 and 121, but then concedes that he does not know if they were successful or not: Transcript at 132).
[55] Transcript at 131.
[56] Transcript at 84.
[57] Transcript at 94.
Prohibition on misleading and deceptive conduct
Section 52 of the TP Act is plainly and simply expressed to provide that a corporation shall not , in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
Were the respondents engaged in trade and commerce?
The respondents were engaged in the business of etching vehicles themselves, and selling franchises to license others to etch vehicles.
The respondents’ business activities constituted engagement in trade and commerce.[58]
[58] Concrete Constructions Pty Ltd v Nelson (1990) 169 CLR 594 at 604.
Were the representations made as to future matters?
Section 51A of the TP Act is a proof facilitation provision with respect to representations as to future matters.
A representation is about a future matter when it refers to things to occur in the future,[59] predictions or projections.[60] A representation may be as to both a present state of mind or belief and a future matter.[61] Honest belief in a particular state of affairs does not mean that there are reasonable grounds for the correctness of the representation; that is, it may be honestly held but unreasonable.[62]
[59] Sykes v Reserve Bank of Australia (1998) 88 FCR 511 (“Sykes”) (premature press release concerning issuance of polymer bank notes); Ting v Blanche (1993) 118 ALR 543 (“Ting”) (likely rental income if property leased).
[60] Cummings v Lewis & Ors (1993) ATPR (Digest) 46-103 at 53,449 per Sheppard and Neaves JJ (“Cummings”) (financial projections by accounting firm).
[61] Ting at 552 per Hill J.
[62] Cummings at 53,448 per Sheppard and Neaves JJ.
All of the representations alleged to have been made by the respondents were representations as to future matters for the purposes of s.51A of the TP Act[63] except for the representation that Walker had been to Melbourne and seen the business successfully in operation.
[63] Sykes.
Were the future representations made on reasonable grounds?
Where a representation is made about a future matter which matter fails to occur, the maker of the representation bears the onus of adducing evidence to show that the representation was made on reasonable grounds.[64] Liability can be avoided if the representor had reasonable grounds for making the representation.[65]
[64] TP Act, s.51A(2).
[65] Sykes at 514 per Heerey J.
What constitutes reasonable grounds? Reasonable grounds have to be assessed having regard to all of the circumstances of the case, including background, the parties prior conduct and the overall probabilities.[66]
[66] Cummings at 53,449 per Sheppard and Neaves JJ.
Did the respondents have reasonable grounds for making the future representations?
Sheringham led no evidence at all and has therefore failed to fulfil the onus upon it to show that there were reasonable grounds for the representation.[67] It cannot therefore be said to have had reasonable grounds for making the future representations.
[67] Cummings at 53,448 per Sheppard and Neaves JJ.
Walker’s liability, if any, for the future representation is not to be determined under s.51A of the TP Act, but rather under s.75B of the TP Act.[68]
Who was involved in contravention of the TP Act?
[68] Discussed at para. xx below.
Under s.75B of the TP Act a person involved in a contravention includes a person who has:
a)“aided, abetted, counselled or procured the contravention”;[69] or
i)“been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention”.[70]
[69] TP Act, s.75B(1)(a).
[70] TP Act, s.75B(1)(c).
Aiding or abetting or being knowingly concerned in or a party to a contravention:
a)requires actual knowledge of the facts which constitute the elements of the contravention;[71]
b)may include a failure to make reasonable inquiry about the facts where there is a suspicion that the facts are not what they seem, from which actual knowledge may be inferred;[72]
c)does not require an intention to contravene the TP Act, but does require intentional participation in the events constituting the contravention.[73]
[71] Yorke v Lucas (1985) 158 CLR 661 at 666-669; Quinlivan v ACCC (2004) ATPR 42-010; [2004] FCAFC 175 (“Quinlivan”).
[72] King v GIO Australia Holdings Ltd (2001) 184 ALR 98; [2001] FCA 308.
[73] Yorke v Lucas (1985) 158 CLR 661 at 666-669; ACCC v Giraffe World Australia Pty Ltd (No 2) (1999) 95 FCR 302 at 346; [1999] FCA 1161.
Ordinarily, a principal will not be liable for the conduct of a corporation, except where the principal’s actions are such that they may be taken to be those of the corporation.[74]
[74] Hamilton v Whitehead (1988) 166 CLR 121; Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40-940.
In this case Walker was the sole director of Sheringham.[75] Walker’s landline and mobile telephone numbers were listed as the numbers to call on advertisements concerning franchises published in The West Australian in January and March 2003, and if a person responded to the advertisement they dealt with Walker.[76] There is no evidence that there were employees of Sheringham, nor is there evidence of the involvement of a single other person in the business or operations of Sheringham. In short, Walker was Sheringham.
[75] Transcript at 69.
[76] Transcript at 71.
Walker also prepared, on or before 19 November 2002, a business plan for the sale of the Western Australian sub-franchises, noting specifically that it was prepared by him, and containing no reference to Sheringham.[77]
[77] Trial Bundle at 471; Transcript at 76-77.
Accessorial liability under s.75B of the TP Act in respect of a future representation requires an applicant to show the respondent had actual knowledge of the making of the representation and that it was either:
a)misleading; or
b)made by the corporation without reasonable grounds.[78]
[78] Quinlivan.
The shift in onus under s.51A of the TP Act does not apply to an accessory under s.75B of the TP Act.[79]
[79] Quinlivan.
Given that Sheringham and Walker were essentially one and the same for practical purposes it is manifestly clear that Walker had actual knowledge of the making of all of the representations, and for reasons set out above, and which need not be repeated, knew that:
a)the representations were misleading; and
b)the representations had been made by Sheringham without reasonable grounds.
Damages under the TP Act?
The evidence establishes conclusively that but for the misleading and deceptive conduct the applicants would not have pruchased the franchises.[80] Therefore, their losses were caused by reason of the contravention by the respondents of ss.51A (by Sheringham only) and 52 (both respondents).[81]
[80] Klages’ Affidavit, paras. 6-10; Moody’s Affidavit, paras. 8,9, and 11; Schafer’s Affidavit, paras. 8-10 and 14.
[81] Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494.
The respondents endeavoured to assert that the applicants’ losses were caused because the applicants did not work hard enough at the franchise business. The applicants assert to the contrary, but the real proof of the lack of substance in the respondent’s assertion is the lack of evidence of a single successful franchisee conducted by any person anywhere in Australia.
The respondents also assert that the applicants failed to heed a disclaimer in a disclosure document prepared by the respondents.[82] However, read carefully, the disclaimer does not expressly or impliedly disclaim the belief in the representations or their correctness,[83] but, rather, indicates that the disclosure document contains information “you need in order to make an informed decision about whether to enter into a Franchise agreement.” The disclaimer also encourages the franchisees to make their own enquiries about the business of the franchise and to contact other franchisees. Given that three of the applicants were the first three franchisees in Western Australia such enquiries and contact would have revealed little. Further, as the respondents’ own enquiries revealed, contacting the franchisees in Victoria elicited no, or no useful, information. In all of the circumstances, the disclaimer is a not a disclaimer of the truth of the representations, and is insufficient in its terms to properly have put the applicants on notice that the representations were variously, false, misleading and deceptive.
[82] Trial Bundle at 108.
[83] Yorke v Lucas at 666; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60.
There does not appear to be any dispute about the quantum of loss suffered by the first, third and fourth applicants, that loss being in accordance with the schedule of damages filed with the Court by the applicants on 22 November 2006.
With respect to the second applicant the evidence establishes that Klages sold a property in the Perth inner city suburb of Burswood on or about 17 December 2004 for a price of $327,000.00, and that that property, at the time of hearing, had an estimated value of $450-500,000.00.[84]
[84] Klages Affidavit, para.33.
Klages asserts, and he was not challenged in respect of this evidence, that but for the loss that he made by entering into the franchise he would have kept the Burswood property. Klages has therefore suffered the loss of a commercial opportunity.[85] The Court is satisfied on the evidence, that the property in Burswood would have increased in value by approximately $150,000.00 since its sale in December 2004 until now, and that represents an economic loss to Klages in respect of that investment property, but only as to the loss of one half share of that amount as a beneficial interest as a tenant in common.[86]
[85] Sellars v Adelaide Petroleum NLNL (1994) 120 ALR 16 at 26 and 30 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ.
[86] Trustees of the Property of Cummins, (a Bankrupt) v Cummins (2006) 3 ABC (NS) 814; [2006] HCA 6.
In the circumstances, the applicants are entitled to compensation for the conduct of the respondents.[87] The assessment of compensation must be that which most fairly compensates for the wrong suffered[88] measured by the amount of loss or damage sustained.[89]
[87] TP Act, s.82(1).
[88] Johnson v Perez (1988) 166 CLR 351.
[89] I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, [2002] HCA 41.
Loan agreement
A loan agreement was entered into by Moody to fund the balance of the sum owing for payment for the franchise after Moody had paid an initial deposit of $24,620.00.[90] The loan agreement was entered into to facilitate payment for the franchise agreement entered into upon reliance on the misleading and deceptive conduct of the respondents. In those circumstances, it is within this Court’s power under s.87 of the TP Act to declare that the loan agreement is void ab initio between the fourth applicant and second respondent, and the Court does so declare.
[90] Moody Affidavit, at para.12 and Annexure CJM6.
Fair trading and negligence claims
Given the conclusions reached with respect to the claims under the TP Act it is not necessary in the Court’s view for it to consider the fair trading and negligence claims. It suffices to say that even if those claims were successful (which is highly likely in the circumstances) the orders now made would be unlikely to be any different.
Conclusion
The applicants have succeeded on all points in relation to the claims under the TP Act.
The Court will order that the applicants prepare, file and serve a Minute of Proposed Orders and that Minute of Proposed Orders be discussed with the Respondents, and that both parties use their best endeavours to reach agreement on the terms of the Minute of Proposed Orders. If agreement is reached then the matter can be dealt with by way of a draft consent order. If agreement is not reached, the matter is adjourned until 10:15am on 20 December 2007 for further argument as to the form of the order (including costs).
I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate: M Hewitt
Date: 10 December 2007
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