Master Education Services Pty Limited v Ketchell

[2008] HCATrans 220

[2008] HCATrans 220

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S139 of 2008

B e t w e e n -

MASTER EDUCATION SERVICES PTY LIMITED

Appellant

and

JEAN FLORENCE KETCHELL

Respondent

GUMMOW ACJ
KIRBY J
HAYNE J
CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 10 JUNE 2008, AT 10.17 AM

Copyright in the High Court of Australia

MR C.R.C. NEWLINDS, SC:   May it please the Court, I appear with my learned friend, MR V.V. BEDROSSIAN, and we appear for the appellant.  (instructed by Meehans Solicitor Corporation)

MR T.M. JUCOVIC, QC:   May it please the Court, I appear with my learned friend, MR S.J. BURCHETT, for the respondent.  (instructed by McPhee Kelshaw Solicitors)

GUMMOW ACJ:   Is there some point about a notice of contention?

MR JUCOVIC:   Yes, we are seeking leave.

GUMMOW ACJ:   Is that opposed, Mr Newlinds?

MR NEWLINDS:   No, it is not, your Honour.

GUMMOW ACJ:   Very well.

MR NEWLINDS:   There is one other matter of ‑ ‑ ‑

GUMMOW ACJ:   I notice you have dealt with it in your written submissions.

MR NEWLINDS:   Yes.  I do not want to say anything more than that.

GUMMOW ACJ:   All right.  Well, you have that leave.

KIRBY J:   We would not want to have anything outstanding in this litigation.

MR NEWLINDS:   No, your Honour, we are not going to invite you to send it back anywhere.  Your Honour, there is another procedural matter.  At page 113 of the book there is a summons to amend the notice of appeal.  This is only designed to pick up the orders sought, the terms of the undertaking given re costs.  The proposed amended notice of appeal is at page 137.  Now, there was a dispute between the parties about this but I can cure it by amending the proposed amendment.  If your Honours look at paragraph 7.2 at page 137, if we can add after the word “the” and before the word “statement” the words “proceedings in the Local Court relating to” so that it reads “to pay the Respondent’s costs of the proceedings in the Local Court relating to the Statement of Liquidated Claim”, and as I understand it that can be dealt with by consent.

GUMMOW ACJ:   Is that so, Mr Jucovic?

MR JUCOVIC:   That is so, your Honour.

GUMMOW ACJ:   Very well, that can be amended as indicated at page 137, ground 7.2.

MR NEWLINDS:   If your Honour pleases.  Could I start, your Honours, by just quickly taking your Honours to the relevant sections of the Trade Practices Act?  The provisions in Part IVA and Part IVB, to which we will be referring, were all introduced into the Act in 1998 by the Trade Practices Amendment (Fair Trading) Act. Relevantly they include section 51AC, which is the unconscionable conduct in business transactions provision.  That is potentially relevant because your Honours can see that in 51AC(3) there is a non‑exhaustive list of matters that a court can take into account when determining if a particular person has been unconscionable in business transactions.  Subsection (g) of that list is “the requirements of any applicable industry code”.

So your Honours notice that for the purpose of determining whether a person has been relatively unconscionable, one of the matters a court can take into account when determining that question, that is unconscionability, is well what were the requirements of any applicable industry code?

The next relevant provision is 51ACA which is under the heading Part IVB entitled “Industry Codes” and there is a definition of “applicable industry code” which can either be mandatory or voluntary; definition of “consumer” and then importantly a definition of “industry code”, which means a code regulating the conduct of participants in an industry towards other participants in the industry or towards consumers in the industry.  Section 51AD is the section ‑ ‑ ‑

KIRBY J:   I have rather gathered from the written submissions that most of these codes are voluntary and that mandatory codes are the exception.  Is that correct?

MR NEWLINDS:   I think that is right.  As we understand it there are three mandatory codes.  They are the Franchise Industry Code, the Oil Industry Code ‑ ‑ ‑

KIRBY J:   What is the second one?

MR NEWLINDS:   Oil, as in petroleum and, perhaps surprisingly, the Horticultural Industry Code.  We have provided them in our bundle of materials.  All other codes that we understand are being introduced are voluntary.

KIRBY J:   Why do you say “surprisingly”?  I would have thought a common link of those three industries is vulnerability of the people who deal with them?

MR NEWLINDS:   Potentially, albeit that particular description may well be said to apply to lots of other industries.  Of course the section that we are concerned with ‑ ‑ ‑

KIRBY J:   Articled clerks used to be, assuming they are an industry.

MR NEWLINDS:   The legal industry.  Section 51AD is, of course, what we contend is the section for consideration today and what a corporation is prohibited from doing is contravening an applicable industry code.

KIRBY J:   Does anything turn on the verb “must” that is creeping in more and more to statutes?

MR NEWLINDS:   Yes, I think there will be discussion.

KIRBY J:   Is it the usual word I see in 53?  It says, “A corporation shall not”.  So is there a point of distinction between 51AD and 53 in the use of the verb “must”?

MR NEWLINDS:   I do not think so, your Honour.  I am certainly not going to make that submission.  But the point I will be making, and perhaps I will make it at this point, the prohibitive conduct is contravening an industry code.  The section does not speak of contracts at all.  Now, I will not remind your Honours of the content of section 52, 80 or 82 of the Act ‑ ‑ ‑

GUMMOW ACJ:   Wait a minute.  How does Part IVB link in with Part VI?

MR NEWLINDS:   Because each of the remedial provisions, that is 80, which is injunctions ‑ ‑ ‑

GUMMOW ACJ:   Wait a minute.  There are a whole lot of provisions.  For example, you start at 75B, do you not? 

MR NEWLINDS:   Yes.

GUMMOW ACJ:   Pecuniary penalties do not apply, 76?

MR NEWLINDS:   Correct.

GUMMOW ACJ:   Likewise, 76A, 76B, 77, 78, 79, 79A, but then we get to 79B, then we get to section 80 which does apply.

MR NEWLINDS:   Correct, and injunctions does apply, and, of course, the reference to Part IVB in section 80(1)(a) was inserted at the time of the amendments which brought in the unconscionable conduct provisions and the industry code provision.

KIRBY J:   You do not pitch your argument as high – you do not need to – that the only remedies for breaches of the Trade Practices Act are to be found in Part VI?

MR NEWLINDS:   I do not need to go that far so therefore this case does not need to deal with that question which, as I understand it ‑ ‑ ‑

GUMMOW ACJ:   We have not finished dealing with this yet.

MR NEWLINDS:   No, your Honour.

GUMMOW ACJ:   So section 80, that is in.

MR NEWLINDS:   That is in.

GUMMOW ACJ:   The next one that seems to be in is 82, is it not?

MR NEWLINDS:   Section 82 is in.

GUMMOW ACJ:   That has Part IVB in it.

MR NEWLINDS:   Yes.

GUMMOW ACJ:   Likewise, 83, 84, 85 will not apply.  Section 86 is important, is it?  How did this get in to the Local Court?

MR NEWLINDS:   It was raised as a defence.  It was brought as a claim for moneys owing and the issue was raised in a defence and cross‑claim.

GUMMOW ACJ:   Yes.  How did the Local Court get jurisdiction to deal with the defence?

MR NEWLINDS:   It is debateable whether it had that.  That point has never been taken.

GUMMOW ACJ:   It would be under section 39 of the Judiciary Act, would it?  It would have to be, would it not, I suppose?

MR NEWLINDS:   Yes.

GUMMOW ACJ:   Anyhow, section 86 was not engaged.

MR NEWLINDS:   Correct, but 87 was.

GUMMOW ACJ:   But 87.

KIRBY J:   Now, Justice Gummow is going a little bit too fast for me because when I sat in the Court of Appeal we were excluded from – I think the Supreme Court was excluded from the operation cases involving the Trade Practices Act.  I am not sure, but certainly at some stage early in the piece the State court – it was exclusive to the Federal Court, was it not?

MR NEWLINDS:   I think section 52 was always available in the State courts.

GUMMOW ACJ:   That is not true.  It changed at some stage, but a long while ago.

KIRBY J:   What is 86?

MR NEWLINDS:   Section 86 is the jurisdictional provision that confers jurisdiction on particular courts.

GUMMOW ACJ:   It is 86(2), is it not?

MR NEWLINDS:   Yes.

GUMMOW ACJ:   That would pick up the Local Court, would it not?

MR NEWLINDS:   Yes.  However, your Honour, if the contract is illegal and void, then that is an objective fact which one would have thought a court could observe.  When dealing with it as a defence it is not a matter of exercising jurisdiction.  It would be a matter of finding – it is a point that has never been taken and we do not take it now.

GUMMOW ACJ:   You cannot raise a defence…..a federal law without getting into federal jurisdiction, Mr Newlinds.

MR NEWLINDS:   If your Honour pleases.  The point I am coming to is section 87 is in.

GUMMOW ACJ:   Section 87, yes.  That certainly applies to ‑ ‑ ‑

MR NEWLINDS:   That, of course, is the well known – what has sometimes been described as smorgasbord of remedies and a non‑exhaustive list of potential remedies is, as your Honours know, set out in section 87(2) which include in subsection (a) declaring contracts wholly or partially void or invalid from particular dates including declaring contracts void ab initio ‑ ‑ ‑

GUMMOW ACJ:   Section 87(1) does assume, does it not, that a Part IVB case can involve contract?

MR NEWLINDS:   It does indeed.

GUMMOW ACJ:   The Court can modify the contract.

MR NEWLINDS:   Correct.  That is right.

GUMMOW ACJ:   Is section 87A involved?  I think so. 

MR NEWLINDS:   Well, it is engaged, but relevantly ‑ ‑ ‑

GUMMOW ACJ:   Yes, but we have to construe the Act.

MR NEWLINDS:   Yes.

GUMMOW ACJ:   You are worried about your case, I am worried about the Act at the moment.  Section 87AAA does not have anything to do, I do not think.  All right, well, that is Part VI.

MR NEWLINDS:   Well, that is Part IVB and Part VI, and, getting ahead of myself, of course, we submit that what the Act provides is a scheme which prescribes norms of conduct, to use the word in a number of the cases, and has built into it remedial provisions which allow a court of relevant jurisdiction, when there is a finding of breach of an industry code for the purpose of this case, or unconscionable dealings, or misleading or deceptive conduct ‑ ‑ ‑

KIRBY J:   But that finding is not in issue in this appeal.

MR NEWLINDS:   That finding is not in issue in this appeal.

KIRBY J:   Your submission now is beginning to sound more and more like a code provision, that is to say, that the remedies that are provided in Part VI are a code of the remedies that are available for breaches of the Act.  That certainly has not been the way this Court, in at least some cases, has dealt with the matter.

MR NEWLINDS:   No, and I do not need to go that far, but at ‑ ‑ ‑

KIRBY J:   I realise you do not, but we have to get the theory of the Act correct.

MR NEWLINDS:   At a point in my argument, which is, if the Court accepts that there is prima facie a prohibition on the entry into contracts in certain circumstances, one then needs to look at the scheme of the Act to determine whether the purpose of the legislature was to render such contracts void.

CRENNAN J:   Are you saying under section 87 you could get a declaration to that effect?

MR NEWLINDS:   Correct.

CRENNAN J:   Possibly even other relief sought by Mrs Ketchell in terms of repayment of the deposit?

MR NEWLINDS:   Exactly, and only if Mrs Ketchell can demonstrate to the Court that the particular breach has caused her a particular consequence and then the Court exercising a discretion moulds the relief to relieve her from that consequence.  In other words, as Justice Rogers said many years ago in a case I will take your Honours to, there is built into this a rapier sharp ability of a court to give precise relief that remedies the particular breach of the Act as opposed to what might be described as the unsubtle sledge hammer remedy of simply determining that all such contracts are void.

HAYNE J:   That set of propositions assumes a universal answer regardless of the kind of contravention, does it not?

MR NEWLINDS:   In a sense it does.

HAYNE J:   Are we not better first to identify the contravention and see where we get to and see whether there is then a universal answer or a more particular answers?

MR NEWLINDS:   I am sorry, your Honour, I was getting ahead of myself.

HAYNE J:   No, I understand.

KIRBY J:   Just before you leave the text of the Act, there is section 4L which we looked at in Rieson.

MR NEWLINDS:   Yes.

KIRBY J:   I rather understand from the written submissions that it is accepted that that is not engaged?

MR NEWLINDS:   Section 4L is not engaged.

KIRBY J:   Justice Mason explains it in his reasons but just explain to me why 4L is not.

MR NEWLINDS:   Section 4L which is at the start of the Act provides that if a particular provision of a contract is void because of contravention of this Act, then if that provision can be severed, then the court can sever it and the rest of the contract survives, but if it cannot be severed, the obvious reason being if the result is it leaves nothing left of the contract, then the contract cannot survive.  That does not apply here because no on suggests that any particular provision of the contract we are talking about has anything wrong it.  The problem is, was the entry into the contract per se.

KIRBY J:   Without the notices that inform the consumer of the entitlements.

MR NEWLINDS:   I will come to that, what the actual breach was, but why 4L is not engaged is that the respondent nor the Court of Appeal do not point to a particular provision of this contract and say that provision of this franchise contract is in breach of the Act and therefore void, we now have to consider whether it can be severed or not.  The proposition is much more broad than that.  It is, the entry into this contract was something that was prohibited by the Act, therefore the entire contract is illegal and therefore void.  Before we leave the Act, your Honour, can I just remind you of section 172.

KIRBY J:   You had better remind us of anything at all in this Act because I am not as familiar as the federal judges were.  They were, when the Act came along, avid of jurisdiction and this Act was the source of a great deal of jurisdiction in the Federal Court.  In the State courts we looked on it as a very suspect document.

MR NEWLINDS:   Section 172 is, of course, the enabling provision because the Code is in fact made under regulatory powers by the Governor‑General‑in‑Council and the Governor‑General is empowered to:

make regulations, not inconsistent with this Act, prescribing all matters that are required or permitted by this Act to be prescribed or are necessary or convenient to be prescribed for carrying out or giving effect to this Act and, in particular –

various things.  Those particular things do not refer to industry codes.  Importantly, your Honours will have picked up ‑ ‑ ‑

KIRBY J:   Where are industry codes referred to there?  Section 172?

MR NEWLINDS:   Yes.

KIRBY J:   That is the regulation making power.

MR NEWLINDS:   It is.  Your Honours will have picked up in our written submissions that one can use various clichés; putting cars before horses or allowing tails to wag dogs.  We have boldly put the proposition that of course it is impermissible to construe an Act by reference to regulations made pursuant to the Act.  That may not be correct as a universal proposition because I think we understand that, so long as the Act makes it clear, the Act can, and sometimes the Acts do, enable the regulations, once propounded, to become part of the Act and, indeed, I think historically there have been examples which have been upheld by the court of statutes actually giving a regulatory power to a person, which power allows that person to actually amend the Act.

We do not really need to get into that debate.  The point is, the enabling provision in this Act, which is the provision under which this Code was propounded, dictates that whatever the Code does it cannot be inconsistent with the Act.  That is the first point.  The second thing we know is that “industry code” is a defined term and therefore, what the regulations can do is spell out the industry code which prescribes conduct within an industry.

HAYNE J:   Can I just follow more closely the proposition you have just put.  Section 172 is the general regulation making power?

MR NEWLINDS:   Yes, your Honour.

HAYNE J:   Relevantly, regulations may be made not inconsistent with the Act prescribing matters permitted by this Act to be prescribed?

MR NEWLINDS:   Yes.

HAYNE J:   That, in turn, connects with 51AE, does it not?

MR NEWLINDS:   It does, your Honour.

HAYNE J:   You made a point about inconsistency with the Act?

MR NEWLINDS:   Yes.

HAYNE J:   What is the point you are making and how is it based?

MR NEWLINDS:   The point is this, and can I explain it your Honour by just showing your Honour the particular breach of the Code for which we are guilty which is set out in the appeal book in the Court of Appeal’s judgment at page 84?  What we have been found to have breached is the provisions of clause 11(1):

(1)The franchisor must not:

And it is relevantly little (a):

(a)enter into, renew or extend a franchise agreement . . . 

unless the franchisor has received from the franchisee or prospective franchisee a written statement that the franchisee or prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document ‑ ‑ ‑

GUMMOW ACJ:   Where is the definition of “franchise agreement”?

MR NEWLINDS:   It is in the Act.

GUMMOW ACJ:   No, as defined in clause 4 of the Code.

MR NEWLINDS:   I am sorry, your Honour.  We just picked that up, your Honour.  If your Honour has our bundle of materials, which is in the white folder called Index to Appellant’s Folder of Materials, behind tab 2 at page 58 in the bottom right‑hand corner there is a definition of “franchise agreement”.

GUMMOW ACJ:   An implied agreement?

MR NEWLINDS:   It can be implied and it can be oral, strangely enough.  So you have this very odd regime under the Code whereby you can have an oral agreement, but you have to provide a written disclosure document setting out many of the terms in what would otherwise be an oral agreement, but you do not have to provide a copy of the oral agreement.

KIRBY J:   That is not so odd.  That is simply emphasising the importance that has been attached to the giving of the information to the consumer.

MR NEWLINDS:   That is true enough.  Now, the point though, your Honour, is that – going back to page 84 of the appeal book and clause 11(1) – on our learned friend’s submission and on the Court of Appeal’s approach, the contract that has been entered into was prohibited by clause 11(1) of the Code:  a franchisor must not enter into this contract unless he has done various things.

The point I am trying to make, and to answer Justice Hayne’s question, is this.  In my submission, the Act has a meaning without the Code and without any codes.  In other words, the Act had a meaning at the time it was proclaimed and that meaning cannot be altered at all by whatever the Code says.  That is the first point, because if that was what was happening it would follow, as a matter of logic, that the Code must be inconsistent with the Act.  That is the first point.

The second point I am trying to make is that the enabling provision only gave power to the regulatory person – the Governor‑General – to proclaim a code.  There was no delegation of the power to prescribe the consequence of a breach of the Code.  Our learned friend’s submissions, with respect, and the Court of Appeal’s approach with respect to them, has put the cart before the horse and construed the relevant breach as a breach of 11(1) – notice that 11(1) uses mandatory, prohibitory words, such as “must not” – and come to the conclusion, therefore, this contract is prohibited - I interpolate, by the Code - therefore it is illegal and void.

We say that is the wrong approach because unless one can get to that conclusion by simply looking at the relevant sections of the Act, which is the breach section followed by the various remedial provisions, then that is an impermissible road to get to the conclusion that the Court of Appeal reached because what they have done is fallen into the trap, we would respectfully suggest, of construing the Act by reference to the regulations made pursuant to the Act and had also read into the Code the consequence of breach of the Code by noticing the word “must” and that is really ‑ ‑ ‑

KIRBY J:   But one would construe the Code, which is contemplated by the Act, made under the Act, as integrated upon its making in the provisions of the Act and picking up those provisions to give it force and effect as one of the few mandatory codes and therefore intended to carry certain serious consequences for the breach.

MR NEWLINDS:   Yes, we accept that ‑ ‑ ‑

KIRBY J:   That does not answer the question in the appeal, but you would have to look at the legislative pattern as integrated because the Act contemplated there would be these codes and there are.

MR NEWLINDS:   It did, but it did not contemplate what the codes would say.

CRENNAN J:   Nothing Justice Kirby has said is inconsistent with 51AD.

MR NEWLINDS:   No, it is not.  That is exactly right.  The consequence of breaching a code is you have breached the Act because there is a provision of the Act that says a corporation must not breach a code.  The question for determination in this case is where do we go from there?  What does that mean?

GUMMOW ACJ:   Where would you go in terms of the Act?

MR NEWLINDS:   We say you go to the various remedial provisions, and if a person who complains about the breach goes to a court of competent jurisdiction and has to prove some consequence to their detriment as a result of the contravention of the Code, and if they can they get what relief is appropriate.

KIRBY J:   Well, you are not going to get away from Justice Hayne’s question because you are going to have to come back to that, but it is a little too simplistic, with respect, to say you look to the Act.  Of course, that is the starting point, but so far as I am concerned this is just another federal Act, and acts have been around for a long while, hundreds of years, and doctrines have been established to try to help courts face the question which is presented in this appeal, and that is where Parliament does not spell it out in words of one syllable, what is the consequence of a breach of the Act, and it is not always found only and exclusively and entirely in the language of the Act.

MR NEWLINDS:   I accept all of that, but I am making the submission that where you cannot go, where it is impermissible to go, is to the regulations made under the Act, because if that leads you to a different answer than you would otherwise reach by looking at the Act, then it must follow that the Code is inconsistent with the Act, which means that whatever part of the Code that has led you to that conclusion was some words written beyond the power of the regulators.

KIRBY J:   Was that ever contended in this case that the Code was in any particular inconsistent with the statute?

MR NEWLINDS:   Yes, the submission that was firmly put at the Court of Appeal that what the court should be doing was construing the Act and that what they were doing was mistakenly construing the Code as if it were the Act.

KIRBY J:   But that the regulation or the Code, the subordinate legislation, is invalid?

MR NEWLINDS:   No, not that it is invalid.  It is that it is to read too much into it to assume that the regulators were intending or did write into the Code what the consequence of a breach is.  They properly, we would suggest, left that for the Act to deal with.

CRENNAN J:   Is not the argument in its simplest form that the Code is dealing with standards of disclosure and the Act is dealing with remedies and sanctions?

MR NEWLINDS:   Well, the Code deals with the standards of conduct, the Act makes it a breach of the Act to not comply with the Code, and then the Act deals with remedies.

CRENNAN J:   Or to contravene the Code is the wording, is it not?

MR NEWLINDS:   To contravene the – and that takes you to the remedial sections.

HAYNE J:   Well, that proposition you have just embraced would read out 11(1), would it not ‑ ‑ ‑

MR NEWLINDS:   No.

HAYNE J:   ‑ ‑ ‑ because 11(1) says you may not make a contract?  Do you accept that the franchising agreement, yes, deals with subjects of disclosure, but also says you may not make a contract unless?

MR NEWLINDS:   Yes, that is what it says.

HAYNE J:   What does 51AD say in respect of the proposition:  you may not make a contract unless you are given this bit of paper, that bit of paper, or whatever?

MR NEWLINDS:   Well, then you go to the court and you make out a case that there has been a breach of the Act because this person entered into a contract when they should not have, and then you say to the court ‑ ‑ ‑

HAYNE J:   But the stipulations agreed in the contract that the Parliament has said through 51AD that a corporation must not make may nonetheless be enforced in the courts?

MR NEWLINDS:   Correct.  In the same way as happens every day of the week, we would suggest, that a person comes before the court and successfully proves that a corporation is guilty of misleading or deceptive conduct but fails to prove any consequence of that and they are left with an empty, if they are lucky, declaration but nothing more.

HAYNE J:   Because the radical difference between the example you just give and the case that we are concerned with is that one concerns the prohibition of making a contract, the other concerns other conduct.

MR NEWLINDS:   Well, can I take issue with your Honour and then move on?  We say, no, because we say the Act, what the Act is concerned with, is whether codes are complied with or not, and it is not concerned with contracts.  It happens that this particular code is concerned with contracts, and it happens that in the way this particular code is drafted it says that you must not enter into a particular contract.

We say that is just the happenstance of the drafting of the Code could have easily been drafted that “prior to entering into a contract a person must”, in which case it would not be a prohibition on the entry into the contract but ‑ ‑ ‑

HAYNE J:   Just so.  If things were different, things would be different, I understand that.

MR NEWLINDS:   My point is, things are different under the Code, that should not change the answer you get under the Act.  That is our first point, if I may say so.  Our second point is this.  The starting point of any of these discussions is whether there is actually a relevant prohibition on entry into contracts.  We would suggest, firstly for the reasons I have given, the answer to that is no, the Act does not preclude entry into contracts.  You get that from this particular breach of this particular Code but you do not get it from the Act. 

KIRBY J:   Yes, but the Code is contemplated by Parliament.  Parliament said “we don’t have the time, nor do we have the expertise, nor can we think through all of the consequences, so we are going to have subordinate regulation and it is going to have consequences that you breach this subordinate regulation” and it is not at all unusual in this context of this Act that the subordinate regulation says in certain cases it is going to be mandatory and in certain cases you must not enter into the contract at all unless you do certain things.  There is nothing surprising about this provision of 11(1).

MR NEWLINDS:   No, no, nothing at all, but what is surprising is that the Court of Appeal has effectively determined that the consequence of breach of the Code is found within the Code itself.  That is what is unusual, in my submission.

KIRBY J:   No, found in the Code itself as authorised by Parliament as a Code.  Unless this is invalid and void and we can just ignore it, it is not part of the law.  If it is part of the law made under the Act, contemplated by the Act for the specificities and particularities that Parliament does not have time to go into, then I just do not see – unless you are somehow saying it is invalid and we can just ignore it, we have to give it effect.  It is contemplated, it is part of the law of this nation.

MR NEWLINDS:   We give it effect.  We acknowledge that we have breached the Code and we acknowledge that therefore we have breached the Act.

GUMMOW ACJ:   Just stopping there for a minute.  It would be consistent with your submission, would it, that there would be an availability of an injunction to a prevented entry into this contract, because that would have fallen within section 80, would it not, “proposing to engage, in conduct that constitutes or would constitute” a contravention of Part IVB.  So it would attract an injunction to stop it being ‑ ‑ ‑

MR NEWLINDS:   Correct, and, as we know, in certain circumstances if corporations run around engaging in misleading and deceptive conduct, even if it is not causing particular damage to particular people, permanent injunctions are granted.

GUMMOW ACJ:   Your point, then is, it happened.  Now, the consequence of getting another order under 87 is at least likelihood of loss or damage by reason of the contravention.  That is in contra distinction to the common law position which is void full stop regardless of any suffering of loss or damage.  The question then is, is the common law situation consistent with the policy evident in section 87 of requiring loss or damage?

MR NEWLINDS:   Yes.  Although your Honour is one step ahead of me.  Before I even get to that, I make the submission that properly construed there is no prohibition on entering into a contract.

GUMMOW ACJ:   Yes, I understand that, but I am assuming you do not succeed in that.

MR NEWLINDS:   Yes, that is the next stage.  Your Honour has the scheme of the Act.  We have set out in our written submissions the relevant passage of the SST v Rieson Case.

GUMMOW ACJ:   The reason for the legislative policy being dissatisfaction with the brutal simplicity of the common law doctrine as distinct from the ‑ ‑ ‑.

MR NEWLINDS:   Correct, now I will not take your Honours to ‑ ‑ ‑

GUMMOW ACJ:   As distinct from the sophisticated provisions of the Act.

KIRBY J:   The so‑called sophisticated provisions of the Act have an air of unreality, with respect, so far as ordinary consumers and franchisees are concerned because they are not going to rush off and get an injunction in the Federal Court or some other court when the whole point is they have not been given the notice of their entitlements so they are not going to rush off and get sophisticated remedies.

GUMMOW ACJ:   I am taking about section 87 at the moment which is not an injunction, really.

MR NEWLINDS:   Can I deal with Justice Kirby’s point?  Firstly, your Honour is assuming that every franchisee who finds a breach of the Code will want to have their contract voided and of course in many cases they will not.

KIRBY J:   This is a point you make in your written submissions and I do understand that.

MR NEWLINDS:   Your Honour, we are not going to make too much of Justice Rares’ recent foray into this area other than to note that in the case ‑ ‑ ‑

GUMMOW ACJ:   This is Hoy Mobile v Allphones Retail [2008] FCA 810 at paragraphs 93 and following?

MR NEWLINDS:   That is the one.  What I was going to say, your Honour ‑ ‑ ‑

KIRBY J:   The pleasure of knowing about this case has not yet impinged on my conscious mind so do not assume I know every little nook and cranny, every little twisting development of Trade Practices Act jurisprudence.  I have more important things in my mind.

MR NEWLINDS:   I see.  Justice Rares boldly concluded that the Court of Appeal was not only wrong but clearly wrong in this decision and declined to follow it.  We embrace his Honour’s reasoning other than where his Honour refers to a change in the Code.  We cannot find any relevant change in the Code that would justify a different conclusion, but the point I was going to make before making the somewhat cheaper point was this.  The case that Justice Rares was confronted with was the other way round, it was the breacher of the Code, the franchisor, answering a claim in contract by the franchisee by saying “My answer to this claim is this contract is void because I didn’t comply with the Code.”  Your Honours might recall the ABC v Redmore decision.

KIRBY J:   I remember it well.

MR NEWLINDS   I will just give your Honours the reference.

KIRBY J:   This is the case that Justice Mason said seemed to stand outside the glow of this Court’s authority.  It was a case where I was reversed, or at least my dissenting opinion was not upheld in this Court.

MR NEWLINDS: It is (1989) 166 CLR at 454. I will not take your Honours to it but what your Honours may recall is that the difference between the majority and the minority was that the minority said because of public policy matters, that is the importance ensuring that the ABC did not spend public money without the authority of the Minister, they were prepared to countenance a result which did allow – would have allowed the ABC to succeed in a defence by relying on its own breach of the Act to demonstrate that the contract it was being sued on was illegal.

KIRBY J:   Now, in fairness you have to add there “because of the policy of the Act to defend public money”.

MR NEWLINDS:   Correct.

KIRBY J:   It is not for the ABC’s benefit, it is for the benefit of upholding the will of the Parliament to defend the deployment of public money.

MR NEWLINDS:   Correct, but the majority were not persuaded by that public policy.

KIRBY J:   Yes, I remember.

MR NEWLINDS:   Now, this Act, of course, is concerned with the public good in the sense that it is not good for the public to have what are assumed to be large, evil franchisor‑type corporations acting unfairly towards small, innocent franchisee corporations.

KIRBY J:   Now, can I ask you this.  Justice Mason in his reason says that this is a defence available to the franchisee.  I would be concerned with the point you have just made if it is a defence available to the franchisor, but is ‑ ‑ ‑

MR NEWLINDS:   As a matter of logic it must be.  If a contract is ‑ ‑ ‑

KIRBY J:   ‑ ‑ ‑ there no basis on which one can say the illegality is such that you will not allow – it is a sort of ex turpi causa type notion.  You will not allow the party who has been the source of the illegality to take advantage of it.  I could understand that principle.

MR NEWLINDS:   Firstly, if a contract is void it is void and there is no notion of which I am aware to the effect that contracts are void for one side and not void for the other, although, that is the classic type of remedy that a court could craft under section 87.  That is point one.  Point two is the only way you could get to the result that your Honour Justice Kirby is thinking about is some concept of election which, in my respectful submission, really has no place to play in this area of discourse. 

If a contract is void at the election of the innocent party – a concept we well understand in areas of fraudulent or innocent misrepresentation – then concepts of whether restitution can be given come into play, concepts of true election come into play, ie, at what point has the innocent party elected to keep the contract on foot and presumably pursue other remedies, they being damages, et cetera, within the Corporations Act.  So, in my submission, your Honour ‑ ‑ ‑

KIRBY J:   Just for a footnote to put it on the record, it is in paragraph 1 that Justice Mason says “illegal and unenforceable by the respondent”, paragraph 1 of his reasons.

MR NEWLINDS:   Yes, but as we read his Honour’s reasons the contract is illegal and therefore void and it is that chain of cases that we well understand that his Honour is applying.

KIRBY J:   Now, if you could make that good, that the illegality is, as it were, a poison upon the whole contract and it is unenforceable, not just by the respondent, but by the appellant, then that will be very important for me in this case because if that is so then it is, as Justice Gummow was saying earlier, the heavy‑handed solutions of the common law which are not apt to this problem and it is therefore an argument for looking into the interstices of the Act to find the solutions, and only there, not in the common law.  You do not have to do it now; you just can do it in your own time.

MR NEWLINDS:   I will come back to that.  I was going to take your Honour to a decision of Justice Rogers many years ago when the Trade Practices Act was perhaps newer and ‑ ‑ ‑

GUMMOW ACJ:   You make his Honour sound like a figure from antiquity.

MR NEWLINDS:   It is in a case called Bank of America Australia Ltd v Ceda Jon International Pty Ltd (1988) 17 NSWLR 290. Now, this debate, at least for the purpose of section 52, has been had and won many years ago, as your Honours know. The consequence of the breach of section 52 is that a person has to demonstrate that some consequence has been caused by that contravention of the Act, and then a court – if so persuaded – will give them appropriate remedies.

GUMMOW ACJ:   I think what we are interested in at the moment is the proposition that the common law doctrine as to illegal contracts strikes completely or not at all.  Do you see what I mean?

MR NEWLINDS:   Correct.

GUMMOW ACJ:   Which is not what his Honour was dealing with, is it?

MR NEWLINDS:   I will just refer your Honours to page 295 at about line G.  Just above line G there is a sentence that starts:

Again, in conferring upon courts wide-ranging powers to make orders designed to ensure that infringements of provisions of the Act are dealt with appropriately, powerful weapons are conferred in declaring contracts to be void, in whole or in part, from a specified date.  Instead of the blunt bludgeon of illegality, the legislature has conferred upon courts a finely honed rapier of selective unenforceability.  In the context, it seems to me totally at variance with the legislative intention to hold that an infringement of the provisions of s 52 should be visited with the consequences of illegality.

GUMMOW ACJ:   I think we looked at this question of illegality with statute and common law in a couple of cases.  One of them is Fitzgerald v FJ Leonhardt, is it not?

MR NEWLINDS:   Yes.

GUMMOW ACJ:   Is there anything in there?

MR NEWLINDS:   I think it is still an open question as to whether the Act leaves room for ‑ ‑ ‑

GUMMOW ACJ:   No, no.  It simply is to the common law doctrine that it strikes completely or not at all.

MR NEWLINDS:   Can we have a look at that?

GUMMOW ACJ:   Yes.  I think you have to wrestle with that.  In other words, you cannot achieve a situation where the parties do not seem to be in pari delicto but neither can take advantage of the contract.  You see the problem?  It is what Justice Kirby has been putting.

MR NEWLINDS:   So I think the submission I just made was it does cut both ways – that is, if the contract is illegal, it is void, and that is a proper reading of the Court of Appeal’s decision and we may just come back and develop that by reference to some paragraphs in a moment.  Secondly, as Justice McHugh notes, in a slightly different area of discourse in a case called Nelson v Nelson (1995) 104 CLR 538, which is referred to in our submissions ‑ ‑ ‑

GUMMOW ACJ:   That is the prelude to Fitzgerald, I think.  That was a trust case.

MR NEWLINDS:   His Honour talks about proportionality of consequences being an important factor to take into account.  This was an interesting case where the parties entered into – some property was settled on trust with the express intention of defrauding the State because a person could get a particular rebate if a property was their first property, but if they had another property they could not get it.  So the property settled on trust for that purpose, that purpose is obtained and then the person whose property it always was tries to undo it, the beneficiary relies on the presumption of advancement and says, “It’s my property”, and the person who settled the property says, “No, no, no, I rebut the presumption of advancement by calling evidence that our true intention was simply that you hold the property so that I could defraud the revenue”.

The question there was would equity recognise such a trust in those circumstances.  The answer to that question was yes, but at page 613 of the report, perhaps starting at the bottom of 612, his Honour – about halfway through the second‑last paragraph at the bottom of 612 – says:

Leaving aside cases where the statute makes rights arising out of the transaction unenforceable in all circumstances, such a sanction can only be justified if two conditions are met.

First, the sanction imposed should be proportionate to the seriousness of the illegality involved.  It is not in accord with contemporaneous notions of justice that the penalty for breaching a law or frustrating its policy should be disproportionate to the seriousness of the breach . . . 

Second, the imposition of the civil sanction must further the purpose of the statute and must not impose a further sanction for the unlawful conduct if Parliament has indicated that the sanctions imposed by the statute are sufficient to deal with conduct that breaches or evades the operation of the statute and its policies.

Then his Honour, down on the next paragraph, dealing with the particular statute:

Accordingly, in my opinion, even if a case does not come within one of the four exceptions to the Holman dictum –

The Holman dictum is if parties agree to do something illegal the loss lies where it falls –

to which I have referred, courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless:  (a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or (b)(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct ‑ ‑ ‑

KIRBY J:   Does that not emphasise the point which is comfortable with a point this Court has been unanimously emphasising for the last decade that ultimately the question in this appeal comes down to a construction of the legislation?

MR NEWLINDS:   Absolutely.

KIRBY J:   Is the legislation intended, as it is sometimes put, or does it have the effect that the whole remedy has to be found in the statute or can you construe the legislation comfortably with the old common law doctrine that you have both; you have the statute but you have also the traditional remedies, particularly where, as it is said here, the statute contemplates a code.  The Code for this particular mandatory type of case contemplates you will not enter the contract at all and in that circumstance you then by that way bring in the common law doctrine.  Now, it is a question of how it is intended to work best and that is Justice Hayne’s question at the beginning of the case; it is not necessarily absolute, it is horses for courses.

MR NEWLINDS:   Of course, and that is exactly what this case is and that is exactly the question before your Honours.  Before I move on, may I pick up your Honour Justice Kirby because your Honour is making an assumption as to what the breach was which is incorrect, if I may say so, easy to fall into this trap.

KIRBY J:   The factual statements in your submissions and in the background are not entirely perfect because I had to go hunting in the magistrate’s decision to find out that this was a case where the franchise was a coaching house and that the respondent, as it were, joined them in order to do some coaching, so it was not entirely clear.

MR NEWLINDS:   I will take your Honours to the Code in a moment but your Honours no doubt will not be surprised that what the Code obviously sets out to achieve is that people before they enter into franchise contracts are fully informed and have as much relevant information as they could possibly be given presented to them in a way that they can understand with time for them to seek legal and accounting‑type advice as to what they are doing with various cooling‑off periods to allow them to think about what they are doing, even after they have signed the contract.  None of that will come as a surprise.

We have not been found to have breached any of those portions of the Code.  In other words, there is no finding that the relevant disclosure document was not given and, indeed, the relevant disclosure document was given.  There is no finding that the relevant disclosure document was not fully adequate.

CRENNAN J:   What about 11(2) requiring written statements in relation to legal advice and so forth?

MR NEWLINDS:   Yes, I will come to that, your Honour.

CRENNAN J:   Yes.

MR NEWLINDS:   There is no finding and, indeed, there is no suggestion that the respondent did not have the opportunity to get legal advice.  There is no finding that she did not understand the meaning of the contract.  There is no finding that she did not understand the financial consequences of entering into the contract.  What clause 11 strangely does is say the only thing you have to do before entering into the contract as a franchisor is receive from the franchisee a written statement that the franchisee has received certain information and had an opportunity to get advice. 

For reasons I will develop, that section would not be breached if such a certificate was received from the franchisee, even if the certificate was not true.  The only requirement is to obtain a piece of paper from the franchisee confirming that they have received information.  For reasons that I will develop, the particular provision is as much there to protect the interests of the franchisor as it is the franchisee.  We freely acknowledge that the act of putting before a person a piece of paper which requires that person in writing to acknowledge that they have read and understood other documents may make some people pause and think, “I really had better go back and make sure that I’ve read these documents.  It’s obviously important.” 

To that extent this requirement can be said to be for the benefit of the franchisee, but it is very much for the benefit of the franchisor because what it does is put into the hands of the franchisor a piece of paper which can be deployed in evidence in later disputes or litigation as to whether the franchisee got the information or not.  In other words, it is designed to protect the franchisor from spurious claims and presumably also, and this would be for the benefit of both parties, to reduce the prospect of there being disputes in litigation.

KIEFEL J:   Are you saying it works rather like the statements about pre‑contractual representation?

MR NEWLINDS:   Correct.

KIEFEL J:   Would it prevent the franchisee from bringing proceedings for unconscionable conduct?

MR NEWLINDS:   No.  It does not have any status.  It does not say, “and thereafter that statement will be final evidence or even prima facie evidence”.  It just brings into existence this statement which presumably would have evidentiary value in a subsequent dispute.  It is a bit like the bank manager’s file note which in later years, after the Contracts Review Act became popular, developed into the solicitor’s independent certificate.  It does not answer the question but is very valuable as an evidentiary tool.

KIRBY J:   Well, given the history of this litigation, it is the sort of very peril that it was trying to avoid presumably, that it has gone up and down through the court hierarchy and presumably would not have happened if there had been this little piece of paper, as you say?

MR NEWLINDS:   That is true.

KIRBY J:   But did the respondent acknowledge that she had been given the advices that the Code required?

MR NEWLINDS:   Well, not in writing, that is the problem, but this is why is it not surprising that the magistrate, having found the breach then says there is no damage, because she did not prove anything else.

KIRBY J:   No damage from that breach.

MR NEWLINDS:   From that breach.

KIRBY J:   It is a bit like the case of Leask where in this Court the fact that the person was not a licensed crane operator was not causally related to the damage, the injury to the workman.

MR NEWLINDS:   That is right.  So the magistrate goes, “Well, okay, fine, the franchisor did not get a piece of paper from you acknowledging these things”, and the magistrate not surprisingly goes, “But so what, what do you want me to do with that?”  The answer, the Court of Appeal says, is to find the entire contract is void.

GUMMOW ACJ:   Well, Justice Kiefel raises the question with you, which is the interrelation between 51AC and 51AD, is it not, namely, there was no – there could have been a complaint of unconscionable conduct.

MR NEWLINDS:   There could have been, and indeed there was, and it has fallen away ‑ ‑ ‑

GUMMOW ACJ:   It fell away, did it not?

MR NEWLINDS:   Yes, and I think it was dismissed and it was never the subject of any appeal, but there could have been and there was.  If I may say so, it would be a particularly hopeless claim for unconscionable conduct if the only particular was you did not get from me a piece of paper that ultimately if you had got you could use in this very case to prove the case I am trying to make is no good.  Now, may I just demonstrate how ‑ ‑ ‑

KIRBY J:   Did you have this point in your written submissions?  I do not remember – I mean, it is not irrelevant to try and put a little bit of merits into cases, you know, even in the High Court, as far as I am concerned.

MR NEWLINDS:   Well, that is what I am trying to do, your Honour.

KIRBY J:   I know you are doing it now, but this is all coming to me as a terrible blow.

MR NEWLINDS:   Well, I know.  If you read Justice Mason’s judgment in the Court of Appeal ‑ ‑ ‑

KIRBY J:   I was trembling with rage at the end of it.

MR NEWLINDS:   His Honour, when dealing with the submission this was a technical or minor breach says, “No, no, I do not agree, I think this is very serious”.  Now, that may be his Honour’s subjective reaction to this breach but in our respectful submission it is not a reasonable reaction.  Now, none of this, if I may say so, matters, and we have made this point in our written submissions.  The answer to what the consequence of a breach is, in my submission, ought be the same whatever the breach of the Code be.

Now, I appreciate there may be room for debate there, but it is a surprising result if, as a result of the way a particular code is drafted, some breaches of the Code lead one to the remedial provisions of the Trade Practices Act, yet others have the unsubtle ‑ ‑ ‑

KIRBY J:   You are saying that is surprising, but if the Code is made under the Act and is part of the law of this nation, then if you breach it then you breach part of the law of this nation, and depending on what the breach is, it may have differential consequences.

MR NEWLINDS:   Yes.

CRENNAN J:   I know you said there was no finding she did not have a chance to get legal advice and there was no finding she did not understand the contract.  What was the factual position in relation to 11(2)?  In other words, was there a written statement that she had had independently legal advice?

MR NEWLINDS:   Yes, 11(2) was satisfied.

GUMMOW ACJ:    Where do we se that, or a finding to that effect?

MR NEWLINDS:   Page 23 of the appeal book.  This is the first magistrate’s decision.  Sorry, it is the same magistrate.  It is his first decision.

GUMMOW ACJ:   Yes.  The magistrate seems to have done a pretty good job.

MR NEWLINDS:   Yes.  At page 23, line 25 there is a heading, “Issue (2) Breach of Clause 11”.

KIRBY J:   I am sorry, where is it?

MR NEWLINDS:   I am sorry, I should start a bit higher.  Line 10 on page 23.  The learned magistrate having broken the issues down into a series of questions says:

Issue (1) Failure to Disclose:

I don’t accept the defendant’s submission, irregularities in the disclosure document admitted to by the plaintiff were major. The disclosure provisions of the franchise agreement were initialled by the defendant and she had obtained legal advice prior to signing the contract.

CRENNAN J:   Were the disclosure provisions that were initialled, were they provided to the franchisor?  In other words, were they capable of indicating that she has received and read the disclosure provisions?  That copy?

MR NEWLINDS:   Yes, they were used as evidence before the magistrate to make that very point.  Indeed, as I understand it – I do not think this in the materials – what in fact happened was the franchisee was in the business for a long period of time, call it a trial period, call it something else ‑ ‑ ‑

KIRBY J:   One year, I think.

MR NEWLINDS:   Before any franchise agreement was signed, so she had a years worth of experience in the business to know about it.

KIRBY J:   This is connected with your client, that she was getting students through your client?

MR NEWLINDS:   Correct, and she is using the name.  She is for all intents and purposes operating the business.  That is the “trial run” referred to on page 25 and, as I understand it, she got the disclosure document, worked out that various bits of it were not correct, changed them, initialled them, gave them back to the franchisor and said “Look, you should be disclosing this to me because I am telling you it is not quite right.”.  Now that is the minutiae of the facts and the magistrate finds that at line 15: 

A number of amendments were sought to the franchise agreement through the defendant’s solicitor and all amendments sought were consented to by the plaintiff.  On balance I find the defendant was not engaged in this leading –

“misleading” that should be.

or deceptive conduct amounting to unconscionable conduct.

Issue (2) Breach of Clause 11:

The plaintiff has not complied with clause 11 which requires the plaintiff before a proposed franchise agreement is entered into to obtain from the franchisee signed statements that she had been given advice by an independent legal adviser, an independent business adviser, an independent accountant or a signed statement that she had been told that kind of advice should be sought but has decided not to seek it . . . 

The defendant did obtain independent legal advice.  She saw an accountant but did not obtain his advice.  She prepared her own business plan as required by her bank but did not see an independent business adviser.  Clause 11 2A provides, amongst other things, “Advice about the proposed franchise agreement or franchise business by an of ‑ ‑ ‑

GUMMOW ACJ:   By any of.

MR NEWLINDS:   Any of, yes, thank you, your Honour –

(1) an independent legal adviser, (2) an independent business adviser, (3) an independent accountant.”

I accept the plaintiff’s submission on the ordinary English meaning by any of, can be interpreted to mean any one of (1), (2) or (3) that is an independent legal adviser . . . She did not however sign such a statement and the plaintiff is clearly in breach of this statutory duty.

So the only breach is that we did not get the statement.  Now, let me show your Honours why the result in this case is surprising and disproportionate because this contract could not be argued to be void if we had not given the disclosure document, but had received a signed statement that we had.

GUMMOW ACJ:   Say that again, Mr Newlinds.

MR NEWLINDS:   I will do it by taking your Honours through the Code to demonstrate the various things we have to do.  Just while we have the magistrate’s judgment, at page 24 of the appeal book, the last sentence just below line 5:

I find on balance that no damage is shown to be suffered as a result of non compliance with clause 11.

Not surprising when you look into the minutiae.  Behind tab 2 in our materials folder, your Honours, we have the Code as at 1 March 2008 and it has not been changed, which is the relevant Code.

KIRBY J:   This is what happens when people who just love the Trade Practices Act get involved in a case.  They forget that there is an issue of merits in this matter.  This is all coming as a terrible surprise to me.

MR NEWLINDS:   Your Honour, I have no particular attachment to the Trade Practices Act.  I know others do.

KIRBY J:   Because this does tend to highlight the heavy‑handed blunderbuss of the common law and therefore if this is so, it tends to suggest that that cannot have been what its purpose was in enacting the scheme of the statute.

MR NEWLINDS:   Because did the Parliament really intend to leave it to what become drafting niceties as to whether someone says that one must not enter into a contract before doing something on the one hand, or on the other hand, draft it by saying before entering into a contract a person must do those same things?  Now, in substance, the conduct that is being prescribed is exactly the same, but by a quirk in drafting the consequence, according to the Court of Appeal, becomes enormously disproportionate.

KIRBY J:   It still leaves Justice Hayne’s question outstanding, that is to say, whether certain breaches of the Code attract a common law doctrine and other breaches you have to go off to Part VI.

MR NEWLINDS:   At page 62, we are in the Code.  Clause 6A, there is a heading “Purpose of disclosure document” and your Honours will not be surprised that:

The purposes of a disclosure document are:

(a)to give to a prospective franchisee . . . information from the franchisor to help the frachisee to make a reasonably informed decision about the franchise; and

(b)to give a franchisee current information from the franchisor that is material to the running of the franchised business.

Then if your Honours move forward to page 64, there is clause 11 which has a heading “Advice before entering into franchise agreement”.  I am sorry, my learned junior says I should go to clause 10 and I should.  Page 63, clause 10.  One of the things you have to do before the franchise is entered into is to give to the franchisee:

(a)a copy of this code; and

(b)a disclosure document; and

(c)a copy of the franchise agreement, in the form in which it is to be executed . . . 

at least 14 days before the prospective franchisee –

Just pausing there, it is not meant to be entirely facetious, but one does wonder how one gives to a person 14 days before entering into an oral agreement a copy of the oral agreement in the form that it is going to be ‑ ‑ ‑

KIRBY J:   You are pressing your luck here, Mr Newlinds, because, I mean, you do not have to be too knowledgeable about the affairs of the world to know that franchise agreements can be very oppressive to vulnerable people.  They go in starry eyed thinking they are going to end up like McDonald’s and they come out at the other end short of a lot of money. 

MR NEWLINDS:   That is true enough, your Honour.  I am just pointing out that ‑ ‑ ‑

KIRBY J:   I do not find it surprising that you have got to give documents to them so that they can go home, sit down, have a talk about it, think about it, read it, read it seven times and try to understand it.  I do not find that surprising at all.

MR NEWLINDS:   But the difficulty is, your Honour, clause 4 has a ‑ ‑ ‑

GUMMOW ACJ:   It is the definition in clause 4.

MR NEWLINDS:   The definition of “franchise agreement” says it can be oral.

GUMMOW ACJ:   Or implied. 

KIRBY J:   Yes, you can make an oral agreement, but you have to give some documents in writing because the trouble is it is a little bit – you might remember from your youth police verbals.  I mean, oral things disappear and you can have all sorts of fights about it, but written documents are set in stone and Parliament was intending it to be set in stone in this respect; warnings. 

MR NEWLINDS:   My point is there is no requirement that franchise agreements be in writing.  They can be oral, they can be written, they can be implied or they can be partly all of the three and yet there is a mandatory requirement to provide to the franchisee, 14 days before they enter into the franchise agreement, a copy of the franchise agreement in the form in which it is to be executed.  A drafting glitch, no doubt.  The person who has drafted clause 10 has forgotten about the definition of “franchise agreement”, because you cannot execute an oral agreement and, of course, you cannot give an oral agreement to someone.  Now, it does not really go anywhere, but your Honours should understand that anyone who was relying on an oral franchise agreement would be in breach of this Code, technically, and therefore in breach of the Act. 

The argument about 4L is at paragraphs 47 to 49 of the appeal book, your Honour.  The Court of Appeal in 49 said that:

Sub-cl (a) is outside s4L because the problem for the franchisor is not caused by the inclusion of any (particular) provision in the contract.  Sub-cl (b) –

and that, in our submission, is a mistake for (c) –

is outside s4L because the inclusion of the term requiring payment of licence fees is not said by cl 11(1)(c) to render the making of the contract a contravention of the Act.

So, your Honour, we would submit that SST is not authority for the proposition that section 4L excludes the operation of common law principles which seem to have been asserted by the appellant in its written submissions and the relevant authority is – we have given your Honour the authority of Carlton United and Milreis, your Honour.  Those authorities were not questioned.

Your Honour we make the point that 4L assumes that invalidity can flow from a contravention of the Act and it does in this case because it is on all fours with a direct prohibition on entry and a direct prohibition on receipt and it provides for the consequences to be modified.  Your Honour, on one view of section 4L – it is not engaged in this case – it is not suggested by the appellant that it is engaged in this case – it does not criticise the Court of Appeal’s decision.  What the Court of Appeal says is that the problem is caused by entry.  Accordingly, your Honour, what was said in SST about the central proposition that the contract will be valid and enforceable has no application.

Your Honour we wish to raise in our notice of contention for which leave has been given the possible application of 4L – and we do so on the basis that the – if your Honours would go to paragraph 32 of SST the conditions in paragraph 32 are fulfilled.

GUMMOW ACJ:  That is 225 CLR 516 at page 527.

MR JUCOVIC:   Thank you, your Honour.  The Court said “engaged (a) only if” three conditions are fulfilled:

there is a contract (as distinct from an arrangement or understanding) –

We have that –

only if the making of that contract contravenes the Act –

and the making of this contract contravenes section 51AD and –

only if the making of the contract contravenes the Act by reason of the inclusion of a particular provision in the contract.

GUMMOW ACJ:   That has the consequence, does it not – as Mr Newlinds points out – that once you get away from the actual terms of the statute itself you can have a result where some failures to observe the Code will trigger 4L, and some will not because only some of the prohibitions in the Code are directed to entering into contracts.

MR JUCOVIC:   Yes, your Honour and 4L is  ‑ ‑ ‑

GUMMOW ACJ:   He says that is an odd result.

MR JUCOVIC:   Well, I think Baxter says, your Honour, that 4L does not solve all the problems, but it helps solve a lot of them.  The consequence of that is that one must read the Act conformably with Milreis and CUB as assuming common law principles continue to apply, unless they are excluded, your Honour.  Section 4L assumes illegality from the entry into the contract and asks the question what the contraventions are in relation to the particular conduct of entering into a contract, that is ‑ ‑ ‑

GUMMOW ACJ:   What you have, perhaps in your favour, is paragraph 33.  “Making the contract” the second sentence in paragraph 33 on page 527:

Making the contract with that condition constituted engaging in the practice of exclusive dealing.

It was the inclusion of the condition, et cetera.

MR JUCOVIC:   That is so, your Honour.  The third condition is only if the making contravenes, by reason of the inclusion of a particular provision.  The point, of course, here, your Honour, is for me to address the third condition.  Not every contract is prohibited by clause 11(1)(c).  It is contracts that meet the statutory definition of “franchise agreement” in clause 4.  There are three cumulative requirements, your Honour.  After you get past the form requirements, as we pointed out in our submissions, there is a grant, there is trading under a name and there is a payment of money.

This contract contravenes the Act – section 51AD – because it contains those provisions and the Act is only concerned with those conditions, your Honour.  Those conditions – at least the condition as to payment, your Honour - that is the only one that I am concerned with – are unenforceable.  So we get to the same result by applying section 4L, your Honour, because it avoids, through the mechanism of the Act, the promise to pay which is sued upon in this case. 

There is no issue here about other consequences, he was only concerned with that clause and clauses and the other two conditions that are required to be met before it meets the statutory definition of franchise agreement.  If one were to read the prohibition in clause 11 more narrowly as only bringing down the agreement to pay, the same argument applies, that is, properly construed, it follows from the actual terms of clause 11 that at least the promise to pay is illegal and unenforceable.  Your Honours, our proposition on the notice of contention just simply gives a natural and ordinary meaning to the words of the statute, your Honours, to the statutory provision, to the definition of “franchise agreement”, clause 11(1) and to the words of section 4L. 

Finally, we simply say that it was open to the Local Court not to enforce this agreement simply because performance was illegal because of the provisions of 11(1)(c) and the Court of Appeal decided the case relying on that as well.  If I can just give your Honour a reference to page 93, paragraph 31 of the appeal book and page 96, paragraph 45 of the appeal book where the Court of Appeal pointed out that both prohibitions would be directly disregarded by judicial enforcement of the incident claim?  Your Honours, those are our submissions.

GUMMOW ACJ:   Just before you sit down, Mr Jucovic, are we right in thinking that, if one turns to page 137 of the appeal book where the orders sought by your opponent are set out, amended this morning as indicated in 7.2, that if he were to succeed, they would be the appropriate orders?

MR JUCOVIC:   Yes, your Honour.

GUMMOW ACJ:   Thank you.  Yes, Mr Newlinds?

MR NEWLINDS:   The third requirement for clause 4L to bite is that the making of the contract contravenes the Act by reason of the inclusion of a particular provision in the contract.  There is no provision in this contract that makes it contravene the Act unless you accept our learned friend’s, what we would suggest, too clever argument that it is the provisions in the agreement that make it a franchise agreement ‑ ‑ ‑

GUMMOW ACJ:   This is the house of clever arguments.

MR NEWLINDS:   Sorry, your Honour?

GUMMOW ACJ:   Go on, Mr Newlinds.

MR NEWLINDS:   It is a compliment, your Honour.  Unless you accept the proposition contended for by our learned friends that it is the provisions in the agreement that make it comply with the definition of “franchise agreement” that have the effect of making the contravention of the Act because it is only franchise agreements to which clause 11 bite, in our respectful submission, that is not the case.  Clause 11 has nothing to say about this particular contract; that is the first point.

The second point is our learned friend’s distinction between clause 11(1)(a) and 11(1)(c), which does throw up the question of construction as to what are the non‑refundable payments that are being referred to in clause 11(1)(c) and may we suggest this.  Noting the heading and considering the evident purpose of the provision, we would suggest that what 11(1)(c) is aimed to prevent is franchisors snaffling some money in a non‑refundable way from a franchisee before the franchisee has had this opportunity for informed information and their cooling‑off period.  So. in other words, you could not say to a franchisee, “Look, it cost me a lot of money to give you this disclosure document so you give me some money, it is non‑refundable and we will then go through the process that is prescribed by the Code”.  Answer, that is not fair on franchisees because you have effectively neutered their opportunity to say no because they have already committed themselves to some money.  Our learned friend’s construction is no, that provision relates to any money that is ever payable under the contract throughout its whole life.

HAYNE J:   I think the argument might be a little more refined than that.  It is one that might notice that under annexure 1 of the Schedule there are three species of payment identified, those in clauses 13.1, 13.3 and 13.6, and that we are here in the realm of 13.6, other payments, in particular we are in the realm of recurring payments payable by the franchisee to the franchisor.  As you see from 13.6(e), one requirement about such other payments is that there be an identification of whether the payment is refundable and, if so, under what conditions.  So I think that is the high point of this branch of the argument.  I am not saying the argument is right, but what is the answer to it?

MR NEWLINDS:   The answer is this.  It leads one to this truly absurd position.  The contravention, so it is said, is the receipt of the money, and that must be right.  So the contravention is not having a provision in the agreement saying the money has to be paid; it is actually receiving it.  So it is said that suing for it and asking a court to compel payment of it is to ask a court to assist you in a breach of the Act.  Problem; if that be the proper analysis, the breach can be remedied but only with the co‑operation of the franchisee, because at that point of the hypothetical situation the franchisor says to the franchisee, “Okay, can you please give me a written statement confirming that you have read these documents” and they say, “No, I do not have an obligation to do that”, and then the franchisor would say to the court, “Look, the only reason I am now in breach of the law is because the franchisee will not co‑operate and provide a written statement”, and that cannot have been Parliament’s intention, in my submission.

HAYNE J:   If that is part of the consequence of this arrangement, it would be a consequence that assigns a particular level of responsibility to the franchisor.

MR NEWLINDS:   Sure.

HAYNE J:   That then brings you back to where do you start and is this big against little and all of those issues.

MR NEWLINDS:   I accept that.  Of course the obligation under 11 is for the franchisor to obtain the statement.  There is no express obligation on the franchisee to provide the statement which, in my submission, very much emphasises that the whole section is directed to something that happens before the relationship gets under way proper.

But it also leads to this strange result, which is actually worse in some circumstances than the contract being void.  If our learned friend’s submission be right, for some reason the contract is not now void because we just ignore for the purpose of this argument 11(1)(a), but the franchisor is not entitled to receive any money under it but, presumably, retains the obligation to perform that contract for an indeterminate period of time.  So, what creeps into it is a true element of punishment; the contract remains on foot under which a franchisor does not get paid any money but which is enforceable at the suit of the franchisee.  In my respectful submission, that was not the intention of Parliament because that – talk about out of proportion – that could lead to a tremendous windfall for a franchisee for no particular benefit to the franchisee or to the public generally. 

The final point on the 11(1)(a) versus the 11(1)(c) point is our learned friend does leap over 11(1)(a).  If the submission is accepted that the words “the franchisee must not receive non‑refundable payment” have the effect as my learned friend contends, then it must follow that the entry into the contract is also an illegal act and so we are still left in the position where true it is on this hypothesis my client cannot receive moneys that would be recoverable under the contract but the contract is still void and that does still have the cutting both ways consequence.  So, in our respectful submission, the construction contended for by our learned friend is strained, it leads to inconvenient and disproportionate results and it should be rejected, the proper recourse being the remedial provisions.

Secondly and finally, I think it was put that relief was not sought in the cross‑claim in the Local Court based on breach of the Code.  We do not think that is right.  At pages 7 and 8 of the appeal book we have the Local Court cross‑claim.  Now, if all my learned friend means is that clause 11 was not specifically pleaded, that is true, but breach of the Code was pleaded.  It is particular 4(b).  Your Honours will note that the next paragraph is there was the plea in the usual terms that as a consequence of those breaches the plaintiff had suffered loss and damage.  We know the magistrate did not make that finding and then sections 82 and 87 were invoked.

If it be right, that the Local Court did not have jurisdiction to give the respondent what it sought in its cross‑claim and if it be right that the Local Court could not give the respondent the relief it required by way of defence, may we respectfully suggest, well, that is the respondent’s problem.  It is not procedurally difficult to transfer proceedings to courts that have jurisdiction if your complaint is that a particular head of jurisdiction is beyond the court that you are before.  In my respectful submission, what the respondent did or did not do vis-à-vis the Local Court cannot have any relevant impact on the question before this Court which is, what is a proper construction of the Act?

Finally, most finally, my learned junior makes this point; the Local Court does have jurisdiction, as we understand it, to make orders for damages and therefore section 82 would be triggered and the Local Court could therefore craft an order being the damages equal to the amount of the plaintiff’s claim.  So I do not think it is as simple the Local Court could not use the Trade Practices Act at all by way of a defence.

KIEFEL J:   Is its jurisdiction limited to damages in relation to money sums or are they expressed generally as money sums as well as damages?

MR NEWLINDS:   Well, they can certainly hear claims for liquidated and unliquidated claims.  I must say, I have not looked.

GUMMOW ACJ:   I think you better put it within seven days and show it to Mr Jucovic some agreed extracts from the Local Courts Act at the relevant time.

MR NEWLINDS:   But I should make it clear, those on my side of the Bar table have never taken such a point.

GUMMOW ACJ:   We understand that, but we do not want in a judgment to say anything that is later misconstrued by people reading it, that is all.

MR NEWLINDS:   I will do that, your Honour.  If your Honour pleases.

GUMMOW ACJ:   Yes, we thank counsel for their assistance.  You have that task within seven days and ‑ ‑ ‑

MR JUCOVIC:   Your Honour, I think we gave your Honours the statutory provision in our written submissions, if your Honour ‑ ‑ ‑

GUMMOW ACJ:   Yes, whereabouts?

MR JUCOVIC:   It is in our list.  It is item 20, Local Courts Act 1982 (NSW) sections 7 and 65.

GUMMOW ACJ:   Whereabouts is this?

MR JUCOVIC:   It is in our list of authorities, your Honour. 

GUMMOW ACJ:   We have the Local Courts Act 1982, reprint No. 6 up to 9 December 2003, section 7.

MR JUCOVIC:   Yes, your Honour.

GUMMOW ACJ:   It does not tell you much.

KIRBY J:   That Act or other law in section 7(2) would mean an Act or other law of the State.

MR NEWLINDS:   So I think our submission is, your Honour, the Local Court is a little “c” court for the purpose of the Trade Practices Act.

KIRBY J:   A what court?

MR NEWLINDS:   The Local Court.  Little “c” courts, that is courts without capital “C” have jurisdictions to hear section 82 claims under the Trade Practices Act.

KIRBY J:   Yes, but the question is section 87.

MR NEWLINDS:   I accept that they do not have jurisdiction under section 87.  The only point I was seeking to make is ‑ ‑ ‑

KIRBY J:   Justice Kiefel asked a question.

MR NEWLINDS:   I am sorry, your Honour?

KIRBY J:   Justice Kiefel asked a question.

KIEFEL J:   My question earlier really related to the compensation provisions under section 87.

MR NEWLINDS:   Yes, and I think the answer to that is the Local Court does not have ‑ ‑ ‑

KIEFEL J:   Well, put it this way, would a Local Court be able to give judgment in a money sum for, say, moneys having received?

MR NEWLINDS:   Yes.

KIEFEL J:   Is that because it is by way of damages or compensation?

MR NEWLINDS:   It is because it is proceeding on any money claim.

KIEFEL J:   Would not compensation be proceeding on any money claim?

MR NEWLINDS:   Yes, but it would not be doing it under section 87.  It is expressly ‑ ‑ ‑

KIEFEL J:   Are you saying proceedings under a money claim would not permit a section 87 proceeding?  The question is whether it is going outside its jurisdiction, is it not?

MR NEWLINDS:   Yes, well, my respectful submission is ‑ ‑ ‑

GUMMOW ACJ:   At the moment there is nothing in the Local Courts Act which tells us anything about this.

MR NEWLINDS:   That is right.  It gets its jurisdiction from the Trade Practices Act.

GUMMOW ACJ:   No, no, no, but it is general law jurisdiction.  Nothing in this Act tells us.

MR NEWLINDS:   No.

GUMMOW ACJ:   It says they have what they had before.

MR NEWLINDS:   That is right, which is not very helpful.

KIRBY J:   But it could not issue an injunction, could it?

MR NEWLINDS:   I do know for a fact that they can hear moneys have not received claims.

KIRBY J:   A Local Court could not issue an injunction?

MR NEWLINDS:   No, it cannot, and I do not think it even has limited equitable jurisdiction.

GUMMOW ACJ:   Well, you had better tell us all this within seven days.

MR NEWLINDS:   I will try, your Honour.

KIRBY J:   So by your selection of the court for suing the franchisee, you, on your theory, really control the remedies which the franchisee can get from the Local Court?

MR NEWLINDS:   That is true, so long as the franchisee does not make an application to transfer to a court of competent jurisdiction which it is open to do.  We, of course, when we start the proceedings do not know what the defence will be.

GUMMOW ACJ:   No, but if the franchisee started proceedings in the Federal Court that would sweep everything up into it.

MR NEWLINDS:   Correct.

GUMMOW ACJ:   It would all be accrued jurisdiction.

MR NEWLINDS:   There would be no problem with the Federal Court giving an injunction restraining the other proceedings.

KIRBY J:   Yes, but the Federal Court is quite expensive and it is ‑ ‑ ‑

MR NEWLINDS:   So people say.

KIRBY J:   Its jurisdiction continues to expand.

GUMMOW ACJ:   That might be a good thing.  Is there anything more you want to say?

MR NEWLINDS:   No, thank you very much, your Honour.

KIRBY J:   That is a matter of opinion.  The Acting Chief Justice has his view on this.  Others may not agree.

GUMMOW ACJ:   We thank counsel for their assistance.  We will consider this matter.  You have that leave for seven days and we will adjourn until 10.15 am tomorrow morning.

AT 3.40 PM THE MATTER WAS ADJOURNED