Master Education Services Pty Limited v Ketchell [2008] HCA 38 27 August 2008 S139/2008
ORDER
1. Appeal allowed.
2.Set aside orders 1, 2 and 3 of the orders of the New South Wales Court of Appeal made 19 July 2007, and also order 4 save insofar as it deals with costs, and in place thereof order that:
(i)there be judgment in favour of the appellant on the Statement of Liquidated Claim issued 15 August 2003, in the sum of $26,043.59 plus interest at the prescribed rate from that date;
(ii)orders 2, 3, 4 and 5 made by Malpass AsJ on 15 February 2006 be set aside; and
(iii) the appeal to the Court of Appeal otherwise be dismissed.
On appeal from the Supreme Court of New South Wales
Representation
C R C Newlinds SC with V V Bedrossian for the appellant (instructed by Meehans Solicitor Corporation)
T M Jucovic QC with S J Burchett for the respondent (instructed by McPhee Kelshaw Solicitors)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Master Education Services Pty Limited v Ketchell
Contract – Illegality – Statute not complied with – Appellant franchisor contravened cl 11(1) of Franchising Code of Conduct ("Code") in entering into franchise agreement with respondent franchisee – Section 51AD of Trade Practices Act 1974 (Cth) ("TPA") provided that applicable industry codes must not be contravened by corporations in trade or commerce – Court of Appeal of New South Wales held franchise agreement to be unenforceable due to illegality at common law arising from contravention of Code and s 51AD – Whether contravention of Code and s 51AD resulted in illegality and unenforceability of franchise agreement – Whether legislative purpose of Pt IVB of TPA could be fulfilled without franchise agreement being unenforceable in light of remedies available in Pt VI for contravention of s 51AD.
Words and phrases – "code of conduct", "franchise agreement", "illegality".
GUMMOW ACJ, KIRBY, HAYNE, CRENNAN AND KIEFEL JJ. Section 51AD, in Pt IVB of the Trade Practices Act1974 (Cth) ("the Act"), provides that a corporation must not, in trade or commerce, contravene an applicable industry code. The Franchising Code of Conduct[1] is such a code. Clause 11(1) of the Code provides that a franchisor must not enter into a franchise agreement[2] or receive non-refundable money under a franchise agreement[3] unless the franchisor has received from a prospective franchisee a written statement that the prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document and the Code.
[1]Scheduled to the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth).
[2]Clause 11(1)(a).
[3]Clause 11(1)(c).
Master Education Services Pty Limited ("the appellant"),…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
Continue reading Master Education Services Pty Ltd v Ketchell
Sign in free to access the full text
Details
AGLC
Master Education Services Pty Ltd v Ketchell [2008] HCA 38
Case
[2008] HCA 38
Decision Date
CaseChat Overview and Summary
The High Court of Australia considered an appeal by Master Education Services Pty Ltd (the appellant franchisor) against a decision of the New South Wales Court of Appeal. The dispute concerned the enforceability of a franchise agreement entered into between the appellant and the respondent franchisee. The Court of Appeal had held the agreement to be unenforceable due to illegality at common law, arising from the appellant's contravention of clause 11(1) of the Franchising Code of Conduct and section 51AD of the *Trade Practices Act 1974* (Cth).
The central legal issues before the High Court were whether the contravention of the Franchising Code of Conduct and section 51AD of the *Trade Practices Act* rendered the franchise agreement illegal and unenforceable at common law. The Court was also required to consider whether the legislative purpose of Part IVB of the *Trade Practices Act*, which governs industry codes, could be fulfilled without the franchise agreement being unenforceable, particularly in light of the remedies available under Part VI of the Act for contraventions of section 51AD.
The High Court reasoned that while the *Trade Practices Act* provides for consequences of non-compliance with industry codes, the detailed provisions within the Act for enforcement and remedies under Part VI indicated a legislative intention for a more flexible approach than the harsh consequences of common law illegality. The Act allows courts to prevent entry into agreements, vary terms, terminate agreements, or provide compensation for loss and damage. Furthermore, the Court considered that rendering every franchise agreement void upon a franchisor's non-compliance with the Code would unfairly benefit the wrongdoer and potentially place the franchisee in breach of obligations to third parties. The Court concluded that the Act provides a preferable mechanism for franchisees to seek appropriate relief based on the specific circumstances of the case.
The High Court allowed the appeal, setting aside the orders of the New South Wales Court of Appeal. It ordered that judgment be entered in favour of the appellant on its Statement of Liquidated Claim, with specific amounts for the principal sum and interest. The Court also set aside certain earlier orders made by a single judge and dismissed the appeal to the Court of Appeal, except in so far as it dealt with costs.
Orders
Orders of the court
1. Appeal allowed.
2. Set aside orders 1, 2 and 3 of the orders of the New South Wales Court of Appeal made 19 July 2007, and also order 4 save insofar as it deals with costs, and in place thereof order that:
(i) there be judgment in favour of the appellant on the Statement of Liquidated Claim issued 15 August 2003, in the sum of $26,043.59 plus interest at the prescribed rate from that date;
(ii) orders 2, 3, 4 and 5 made by Malpass AsJ on 15 February 2006 be set aside; and
(iii) the appeal to the Court of Appeal otherwise be dismissed. (Judgment of the Court)
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
GUMMOW ACJ, KIRBY, HAYNE, CRENNAN AND KIEFEL JJ
In rejecting the submission that Pt VI was a "code", the Court in Carlton & United Breweries v Castlemaine Tooheys[71] identified a number of provisions which show that the Act itself does not intend Pt VI to provide for all consequences: provisions such as ss 45(1) and 45B(1), which provide that certain contractual provisions or covenants are unenforceable; s 87(5), which provides that the powers under the section do not affect any other powers a court may have in relation to a contract or covenant in proceedings before it; and s 163A, which provides for the making of declarations and orders as to the operation and effect of certain provisions of the Act and as to the validity of an act, including orders by way of prohibition, certiorari and mandamus. These references do not support an argument that the Act as a whole is not intended to provide for the consequences of a contravention of its prohibitions upon conduct. The provision made for consequences other than those provided in Pt VI highlight the extent to which the Act does so provide. The term "code", with respect to the Act, may be more apt to confuse than enlighten. The operation of the Act was recently described in SST Consulting Services v Rieson as follows[72]:"The Act does much more than proscribe (with the elaborations mentioned) certain forms of conduct. It contains detailed provisions, in Pt VI, dealing with the enforcement of the Act and providing remedies for past or proposed contraventions of the Act. In addition, particular provision is made for the extent to which certain contractual provisions are enforceable."The majority went on to refer, in that regard, to s 45(1).[71](1986) 161 CLR 543 at 554.[72](2006) 225 CLR 516 at 526 [29] per Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ.Conclusion The detailed provision by the Act for the consequences of non-compliance with an industry code, such as the Franchising Code of Conduct, does not support a conclusion that it was intended that the harsh consequences provided by the common law were to follow upon contravention of s 51AD. The Act provides a more flexible approach. It allows a court to prevent entry into a franchise agreement, to vary the terms of an agreement entered into in breach of the Code, or to terminate such an agreement or provide compensation for loss and damage, if it is shown to have been caused by the contravention. In that regard the extended meaning which may be given to loss and damage by s 82, which is suffered by reason of entry into contractual obligations, may assume significance[73].[73]Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 33 per Black CJ, 42-43 per Gummow J, 46-48 per Cooper J. The final matter which supports the non-applicability of the common law sanction for contravention of s 51AD has regard to the position of the franchisee. One of the purposes of the Code is the protection of the position of the franchisee. It is not expressed to prohibit the franchisee from entering into an agreement where a franchisor had not complied with cl 11. As Rares J pointed out in Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2)[74], it would be an unusual result if, in that circumstance, a franchisee's bargain was struck down in every case, regardless of the position in which it places the franchisee. It is not to be assumed in every case that a franchisee wishes to be relieved of their bargain. To render void every franchise agreement entered into where a franchisor had not complied with the Code would be to give the franchisor, the wrong-doer, an opportunity to avoid its obligations[75], and at the same time to place the franchisee in breach of obligations to third parties. A preferable result, and one for which the Act provides, is to permit a franchisee to seek such relief as is appropriate to the circumstances of the case. Some cases of non-compliance with cl 11 might involve substantial non-disclosure; others may only involve a failure to obtain the written statement, confirming that the franchisee has read and understood the disclosure document and the Code. This is such a case.[74][2008] FCA 810 at [103]-[104].[75]See also Yango Pastoral Company v First Chicago (1978) 139 CLR 410 at 426 per Mason J.
Ratio Decidendi
Legal Principle Established
Established by:
GUMMOW ACJ, KIRBY, HAYNE, CRENNAN AND KIEFEL JJ