Pampered Paws Connection Pty Ltd (on its own behalf and in a Representative Capacity) v Pets Paradise Franchising (Qld) Pty Ltd (No 10) - [2012] FCA 25

FEDERAL COURT OF AUSTRALIA
Pampered Paws Connection Pty Ltd (on its own behalf and in a Representative Capacity) v Pets Paradise Franchising (Qld) Pty Ltd (No 10) [2012] FCA 25

Citation: Pampered Paws Connection Pty Ltd (on its own behalf and in a Representative Capacity) v Pets Paradise Franchising (Qld) Pty Ltd (No 10) [2012] FCA 25

Parties: PAMPERED PAWS CONNECTION PTY LTD (ACN 116 460 621) (ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY), ELIZABETH MARGARET MUIR CAMPBELL and LYNDA JANE ELIZABETH DONNELLY v PETS PARADISE FRANCHISING (QLD) PTY LTD (ACN 054 406 272), PETS PARADISE FRANCHISING (SA) PTY LTD (ACN 069 620 391), PETS PARADISE FRANCHISING (NSW) PTY LTD (ACN 060 679 647), GLOBAL PET PRODUCTS PTY LTD (ACN 005 666 599), PETS PARADISE (FRANCHISING) PTY LTD (ACN 006 626 455), PETS PARADISE PTY LTD (ACN 005 558 378), PARADISE RETAIL HOLDINGS PTY LTD (ACN 105 253 441) and GARY DIAMOND

File number: SAD 142 of 2008

Judge: MANSFIELD J

Date of judgment: 27 January 2012

Catchwords:
TRADE PRACTICES – proposed franchise – misleading and deceptive conduct alleged by failure to disclose various matters in Disclosure Document – adequacy of disclosed information – whether non-disclosures alleged were made out – whether the consequence of prompt subsequent disclosure and opportunity to inspect documents meant any non-disclosure in Disclosure Document had caused no loss

TRADE PRACTICES – exclusive dealing – third line forcing by franchisor of products supplied by related company – note s 47 amended from 1 July 2007 such conduct no longer included with s 47(6) – whether loss proved

Legislation: Federal Court of Australia Act 1976 (Cth)
Trade Practices Act 1974 (Cth)
Trade Practices Legislation Amendment Act (No 1) 2006 (Cth)

Cases cited: Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
Australian Competition and Consumer Commission v Australian Dreamtime Creations Pty Ltd [2009] FCA 1545
Re Ku-ring-gai Cooperative Building Society (No 12) Ltd (1978) 22 ALR 621
Australian Competition and Consumer Commission v Bill Express Ltd (in liquidation) 180 FCR 105
SWVB Family Credit Union Ltd v Parramatta Tourist Services Pty Ltd (1980) 48 FLR 445
Stationers Supply Pty Ltd v Victorian Authorised Newsagents Association Ltd (1993) 44 FCR 35

Dates of hearing: 11 May 2010, 13-14 May 2010, 17-28 May 2010, 30 July 2010

Place: Adelaide (via video link with Brisbane)

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 280

Counsel for the Applicants: R Perry SC and C Coulsen

Solicitor for the Applicants: Lynch Morgan Lawyers

Counsel for the Respondents: P O’Sullivan QC and C Munt

Solicitor for the Respondents: Donaldson Walsh

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

SAD 142 of 2008

BETWEEN:
PAMPERED PAWS CONNECTION PTY LTD
(ACN 116 460 621)
(ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY)
First Applicant

ELIZABETH MARGARET MUIR CAMPBELL
Second Applicant

LYNDA JANE ELIZABETH DONNELLY
Third Applicant

AND:
PETS PARADISE FRANCHISING (QLD) PTY LTD
(ACN 054 406 272)
First Respondent

PETS PARADISE FRANCHISING (SA) PTY LTD
(ACN 069 620 391)
Second Respondent

PETS PARADISE FRANCHISING (NSW) PTY LTD
(ACN 060 679 647)
Third Respondent

GLOBAL PET PRODUCTS PTY LTD
(ACN 005 666 599)
Fourth Respondent

PETS PARADISE (FRANCHISING) PTY LTD
(ACN 006 626 455)
Fifth Respondent

PETS PARADISE PTY LTD
(ACN 005 558 378)
Sixth Respondent

PARADISE RETAIL HOLDINGS PTY LTD
(ACN 105 253 441)
Seventh Respondent

GARY DIAMOND
Eighth Respondent

JUDGE:

MANSFIELD J

DATE OF ORDER:

27 JANUARY 2012

WHERE MADE:

ADELAIDE (VIA VIDEO LINK WITH BRISBANE)

THE COURT ORDERS THAT:
1.The parties respectively file and serve within 14 days such proposed orders as they consider appropriate to give effect to these reasons for judgment and for the further hearing and disposition of this application and the application in the former Supreme Court of Victoria action number SCI 06019 of 2009.
2.The application be listed for further directions at 9:30 am (Adelaide); 9:00 am (Brisbane) on 22 February 2012 or such alternative time and date as the Court may determine.
3.There be liberty to apply.

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

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

SAD 142 of 2008

BETWEEN:
PAMPERED PAWS CONNECTION PTY LTD
(ACN 116 460 621)
(ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY)
First Applicant

ELIZABETH MARGARET MUIR CAMPBELL
Second Applicant

LYNDA JANE ELIZABETH DONNELLY
Third Applicant

AND:
PETS PARADISE FRANCHISING (QLD) PTY LTD
(ACN 054 406 272)
First Respondent

PETS PARADISE FRANCHISING (SA) PTY LTD
(ACN 069 620 391)
Second Respondent

PETS PARADISE FRANCHISING (NSW) PTY LTD
(ACN 060 679 647)
Third Respondent

GLOBAL PET PRODUCTS PTY LTD
(ACN 005 666 599)
Fourth Respondent

PETS PARADISE (FRANCHISING) PTY LTD
(ACN 006 626 455)
Fifth Respondent

PETS PARADISE PTY LTD
(ACN 005 558 378)
Sixth Respondent

PARADISE RETAIL HOLDINGS PTY LTD
(ACN 105 253 441)
Seventh Respondent

GARY DIAMOND
Eighth Respondent

JUDGE:

MANSFIELD J

DATE:

27 JANUARY 2012

PLACE:

ADELAIDE (VIA VIDEO LINK WITH BRISBANE)

REASONS FOR JUDGMENT
INTRODUCTION

Pampered Paws Connection Pty Ltd (Pampered Paws) brings this action on its own behalf and on behalf of other present or former Pets Paradise franchises (the Group Members) under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act). Elizabeth Campbell and Lynda Donnelly are the directors of Pampered Paws. Where it is convenient to do so, I shall group the applicants together as “the applicants”.
This action arises out of the grant to Pampered Paws of a Pets Paradise franchise. The term “Pets Paradise” is used to describe the retail business of a supplier of pets and pet accessories, in accordance with a “Pets Paradise Business Model”, developed under the control of the respondents. There is presently a chain of some 80 or so Pets Paradise retail businesses around Australia, many of which operate under franchise.
The first seven respondents are all part of the Pets Paradise group. Each of them has a refined function as part of the Pets Paradise group in securing and servicing Pets Paradise franchised businesses or Pets Paradise businesses which are owned and operated by one of the respondents. Paradise Retail Holdings Pty Ltd (PR Holdings) is the holding company of the group. Gary Diamond is the managing director, and on the evidence the person in overall control of each of the members of the Pets Paradise group. The first three respondents, Pets Paradise Franchising (Qld) Pty Ltd (PPQ), Pets Paradise Franchising (SA) Pty Ltd (PPSA) and Pets Paradise Franchising (NSW) Pty Ltd (PPNSW) carry on business in Queensland, South Australia and New South Wales respectively, granting rights to retail businesses to provide pets and pet accessories under the Pets Paradise name – that is, granting Pets Paradise franchises – and each also operates retail businesses providing pets and pet accessories under the Pets Paradise name. Global Pet Products Pty Ltd (Global) is the supplier of goods to operators of Pets Paradise businesses. Pets Paradise (Franchising) Pty Ltd (PP Franchising) is the author and proprietor of intellectual property rights in the Disclosure Document provided to prospective franchisees by PPQ, PPSA and PPNSW. It also provides support services by way of legal services, copies of documents and in other ways directly or indirectly to prospective franchisees, and from time to time receives and accounts for the payment of legal fees and franchise fees. Pets Paradise Pty Ltd (PP) is the proprietor of certain trade marks in relation to categories of pets and pet accessories, and licenses the use of those trade marks to PPQ, PPSA and PPNSW so they may use them and may sublicense their use to Pets Paradise franchisees. It also assumes liability pursuant to hire purchase agreements to make payments in respect of fixtures and fittings used in the operation of Pets Paradise retail businesses, which may have been guaranteed by PPQ, PPSA or PPNSW. It also receives, and assesses, franchise proposals from prospective franchises. PR Holdings operates as a head office, providing legal, accounting and management staff for the Pets Paradise group, including for the purpose of making representations to, and dealing with, potential franchisees and with Pets Paradise franchisees both on its own behalf and on behalf of PPQ, PPSA and PPNSW. Again, where it is convenient to do so, I shall group the respondents together as “the respondents”.
In addition to the respondents, there are a few other corporate entities to which reference was made in the course of the hearing.
IT Visions Finance Pty Ltd (ITV Finance) is wholly owned by IT Visions Business Systems Pty Ltd (ITV Business). Together they are called IT Visions. Neither is a member of the Pets Paradise group, owned by PR Holdings, but each provides services to Pets Paradise franchisees and Pets Paradise businesses directly owned by PPQ, PPSA and PPNSW. Where a particular Pets Paradise franchisee enters into an IT Visions Point of Sale System, part of the set up to operate a franchise, under a rental agreement, ITV Business or ITV Finance would be the renting party, so it receives the rental payments from the franchisee.
Budget Shopfitters Pty Ltd (Shopfitters) is also an entity independent of the Pets Paradise group. It provides shop fit-out services to certain franchisees, including Pampered Paws, to meet the standards and presentation required for a Pets Paradise retail business.
Before turning to the Group Members’ claims, it is appropriate to address the claims of Pampered Paws. In some respects, its position is not identical with that of other group members. The matter proceeded on the basis that the claims of Pampered Paws should be heard and determined first. It was anticipated that, at least in respect of the asserted documentary representations, findings made will be of benefit because the terms of the relevant documents are in essence the same for all Group Members.
THE EVENTS LEADING UP TO THE OPERATION OF THE PAMPERED PAWS BUSINESS
In about September 2005, Ms Donnelly and Ms Campbell became interested in exploring the acquisition of a Pets Paradise franchise. They each had considerable experience in clerical work and in dealing with people, and some marketing experience. Ms Donnelly had been interested in acquiring and operating a pet related business for some time. She had discussed her plans with her mother, Ms Campbell. She had located a potential shop site at the Stockland Shopping Centre in Burleigh Heads, and had identified the Pets Paradise franchised businesses, through inquiries she had made, as a national and long-standing enterprise. She discussed the prospects of taking a Pets Paradise franchise at that shop with Mr Diamond. She had earlier considered a more extensive pet-related business but had decided that, at that time, it demanded access to too much funding which she could not afford. She made that general decision in conjunction with her mother. Ms Donnelly then arranged to incorporate Pampered Paws, and to secure bank finance to support her then proposed investment. Pampered Paws was to borrow the proposed funds, for shop fixtures and fittings, and a separate loan for the stock. Ms Campbell was to make available personal substantial funds to the bank as security to support the proposed borrowing. Shopfitters had provided a quote for the shop fixtures and fittings, and they were to be financed by an equipment finance lease from the bank, secured by a chattel mortgage. The negotiations and discussions took some time.
In late September, Ms Donnelly was given the Disclosure Document from PPQ, and she paid a “deposit” of $10,000 and signed a Confidentiality Agreement. It is clear that, at that stage, no binding obligations were entered into between herself or Pampered Paws and PPQ.
On 7 October 2005, PPQ wrote to Pampered Paws noting those matters, and purporting to enclose a series of documents for execution. They included the proposed Franchise Agreement. There is a dispute about whether the documents referred to were all enclosed, and indeed about the legal character of that letter. The applicants referred to it as the “letter of offer”. Those matters are discussed later in these reasons.
Further processes took place between about 6 October 2005, when a further “deposit” of $8000 was paid, and 24 February 2006. When the terms of the lease. In the meantime, Ms Donnelly and Ms Campbell consulted accountants to obtain cash flow projections for the proposed business during November 2005; Ms Campbell also prepared her own figures to discuss with the accountant. Detailed cash flow projections were prepared by the accountants on 9 November 2005 and were discussed at some length. Ms Campbell was also well aware of the need to read the documents for the proposed franchise carefully, and stressed the need to do so to Ms Donnelly.
On 15 November 2005, Ms Donnelly and Ms Campbell apparently signed the Franchise Agreement for Pampered Paws with PPQ. I note there is some dispute about that date.
Ms Donnelly on behalf of Pampered Paws also dealt with the National Leasing Manager of the Pets Paradise group Frank Kersten in relation to securing the lease of the shop at the Stockland Shopping Centre at Burleigh Heights, and in relation to the fit-out of the shop. On 9 March 2006 she signed the lease with the shopping centre operator as director of Pampered Paws.
The shop fit-out was effected by Shopfitters. That company provided a quote for the fit-out in mid-February 2006, I find, at the instigation of Mr Kersten. It was for $233,000 or thereabouts. It was considerably more than Pampered Paws (through Ms Donnelly) had expected. Shopfitters also provided a further quote a few days later for $250,000, but Ms Donnelly was told that the higher figure was to support a bank loan of $250,000 as the proposed fit-out itself was unchanged. Pampered Paws accepted the first quote and the work was carried out. Ultimately its cost was some $213,000.
The shop opened on 10 March 2006.
From the beginning the price for the fit-out was contentious. As a term of the lease, Mr Kersten had negotiated a contribution of some $75,000 from the Stockland Shopping Centre towards the fit-out, but Pampered Paws had not received it. Shopfitters was pressing for payment. Pampered Paws (through Ms Campbell) pressed for a detailed tax invoice and supporting invoices, but received only the tax invoice (without much detail) and some accounts of Shopfitters. Under the threat of being sued, Pampered Paws paid the full Shopfitters’ invoice.
One of the elements of the “package” for the franchise was the training to be provided in the Pets Paradise business system. That took place for both Ms Donnelly and Ms Campbell in Melbourne between 30 January 2006 and 6 February 2006. During the training issues arose as to Ms Campbell signing personal Guarantees and Indemnities to PPQ and to Global for the obligations of Pampered Paws under the Franchise Agreement and under the Global Terms and Conditions (the Global Supply Agreement). Ms Campbell signed them, as requested, but reluctantly, on 6 February 2006. She then appreciated that that her personal exposure in the event of Pampered Paws falling into difficulty was no longer limited to her surety provided to the bank to support Pampered Paws’ borrowing that surety to the bank was to the extent of $50,000.
The nature and extent and availability of the Pets Paradise stock was also addressed during the training period. Generally speaking, it was to be supplied by Global. During the training, Pampered Paws made its first order to Global for stock. It was also required to sign the Global Commercial Credit Application and the Global Supply Agreement.
During training, both Ms Donnelly and Ms Campbell also were taken to the premises of IT Visions. Ms Campbell spoke to officers of IT Visions about the support available in Queensland from a Melbourne based company. Pampered Paws also signed the IT Visions rental agreement for the supply of the electronic ordering and stock control system for Pets Paradise franchisees (the IT Visions System) to operate as its Point of Sale electronic system.
There was some discussion during training about the circumstances in which Pampered Paws could order and display products other than “Pets Paradise” labelled stock or other stock sourced from Global, and how the IT Visions System could cater for non-Global products.
Following the commencement of the Pampered Paws business, it did not operate successfully at an economic level. It suffered significant losses of around $55,000 in the financial year ended 30 June 2007 and around $30,000 in the financial year ended 30 June 2008. In those periods, Ms Donnelly worked long hours in the business without drawing any significant salary, and progressively Ms Campbell also contributed to the operations of Pampered Paws with her time and efforts, again without payment of salary.
Pampered Paws from the early stages of its operations stocked other products in addition to the Global-sourced products, and over time increasingly so. The last order placed by Pampered Paws for Global products was made on 30 April 2008. By about the end of September 2008, Pampered Paws had barely any Global products or Pets Paradise labelled products in its shops.
Ms Donnelly from the commencement of the business had plans which extended beyond operating purely as a typical Pets Paradise franchised business. Those plans included incorporating a pet grooming service, a puppy training school service, and a “pawtisserie” selling doggie cupcakes and coffee. She in fact introduced those services over time.
THE CLAIMS
In their submissions, the applicants have categorised the claims made by Pampered Paws and by Ms Donnelly and Ms Campbell under the following headings:
1.Misleading and Deceptive Conduct
(a) Express Representations
(b) Implied Representations
2.Exclusive Dealing
3.Franchising Code of Conduct
4.Unpaid labour claim (of Ms Donnelly and Ms Campbell)
They then deal separately with:
5.Accessorial liability
6.Loss and Damage
7.Orders
There are also significant factual disputes, and issues about the credit of various witnesses. It is convenient, in the first place, to record some findings about some of the factual issues. The submissions will then be addressed in the sequence above.
GENERAL OBSERVATIONS AND FINDINGS
(a) The Applicants’ Thesis
First, it is useful to understand the general thesis of the applicants’ case. It is that the Pets Paradise system was to enable “Global, and those controlling it, to manipulate the franchisees’ businesses to the benefit of Global”, so that the franchisees would be no more than Global retailers. The only relevant legal relationship between Pampered Paws and Global is by the Global Supply Agreement. Thus, it is asserted, Global achieves the product mark-up to franchisees with a “tied product” obligation, and Global controls and regulates the products which franchisees including Pampered Paws are entitled to sell. It is claimed that the “Pets Paradise Business Model” as described in the Disclosure Document and in the Franchise Agreement is different from that reality.
The Pets Paradise Business Model is said to have the following features:
1.the carrying on of a retail business selling pets, pet food, related literature and accessories under the Pets Paradise name and logo; and
2.the requirement that franchisees carry a common range, level and mix of stock, and effect and maintain a uniform store fit-out.

However, it is claimed, the Franchise Agreement is a “paper tiger” because the franchisees’ obligations are in essence those under the Global Supply Agreement and not under the Franchise Agreement, so that the obligations of PPQ (or the relevant franchisor) under the Franchise Agreement are of little moment.
The respondents have labelled this overall thesis as “Unpleaded New Case Raised in Opening”. The thesis is not pleaded. The final submissions on behalf of the applicants did not suggest that the thesis was other than an underlying explanation for the particular pleaded causes of action. I accept that. It is to the pleaded conduct that the Court’s attention must be directed.
The applicants’ thesis can readily be regarded simply as an overstatement of the nature of franchising. Whether that is so is a matter to be determined, by reference to the particular allegations. Mr Diamond has conducted the Pets Paradise group business for many years. He opened his first Pets Paradise business in Victoria in 1979, and granted the first Pets Paradise franchise in 1986. The franchisor of that first franchise, Darryl Stephenson gave evidence. He now operates, apparently successfully, four franchised Pets Paradise businesses in Victoria, and does so buying most of his stock through Global without the difficulties or issues raised by the applicants.
There are now some 53 franchised Pets Paradise businesses throughout each mainland State of Australia, and some 23 Pets Paradise group owned businesses.
Over time, to make a point of difference, to secure the necessary range of stock, and to secure the better stock, preferably exclusive, and for the benefits of group purchasing power, Global became the buying arm and stock supply arm of the Pets Paradise group for its own businesses and for its franchisees. The structure and documentation within which that occurred became more sophisticated. Mr Diamond also said that the competitive market has made it harder in more recent years to secure exclusivity of certain products, but efforts to retain and promote Pets Paradise labelled products have continued.
There is nothing sinister about the evolution of the Pets Paradise group in that way. As it has grown, it has (as the applicants pointed out) developed a franchise arm and a stock supply arm (its Global arm) each separately administered under the overall oversight of Mr Diamond.
From the point of view of the respondents, the Pets Paradise group with its franchise arm and its Global arm, and the processes adopted by each, has been a natural and typical (and successful) evolution to a sophisticated multi-faceted business.
Mr Diamond is also associated with two other businesses in the “pets products” area. Pets Goods Direct stores were commenced in 2005, and there are now 22 of them across Australia, some franchised. They operate as bulk stores selling food in bulk and larger items, whereas Pets Paradise businesses are specialised retail stores focusing on livestock and pet accessory products. The second of Mr Diamond’s other businesses is the Pets R’Fun stores, which was a competitive chain to the Pets Paradise group. They were bought out by the Pets Paradise group in 2007. There are only four Pets R’Fun stores, and none in Queensland. The existence of these businesses is of no moment to the resolution of the present proceedings.
IT Visions is operated and, in a real sense, run by Livia Mammarella. It is referred to in more detail later in these reasons. It is convenient to note that Mr Diamond has a 50% interest in IT Visions, through a private company. His interest is disclosed in the Disclosure Document.
The Pets Paradise business and the Pets Paradise franchise system, not surprisingly given its lengthy history, is a sophisticated one. It is aimed to get Pets Paradise stores in major shopping centres. The Global arm seeks to secure high quality, and preferably exclusive, stock for both franchisees and its group businesses. It is important to have a relatively consistent product range across all Pets Paradise businesses for building and promoting brands and fostering brand loyalty across all Pets Paradise stores. It is self-evident that a Pets Paradise business which stocked inferior products or did not maintain the image of Pets Paradise stores could diminish the Pets Paradise reputation and goodwill.
Consequently, in addition to formal documentation to which reference is made in the next parts of these reasons, the Pets Paradise group has developed its Store Standards Manual, its Instructions and its Information Guide for franchisees. It has a national advertising fund to which its franchisees are required to contribute, and a training program for new franchisees, and Area Managers to monitor and assist the franchisees in their businesses and (as the evidence shows) to ensure if possible adherence to the Pets Paradise business systems.
From the respondents’ viewpoint, therefore, the applicants’ thesis is simply misconceived. The respondents say that the Pets Paradise franchise system is a typical and well operated system for the benefit of both the Pets Paradise group and its franchisees, and the Global operations are a legally unremarkable and proper element of that system.
(b) The Credit of the Witnesses
There are, as the submissions indicate, some significant factual disputes which require to be resolved.
However, the disputes do not indicate in my view that any particular witness was endeavouring to mislead the Court. To the contrary, in my view each of the witnesses endeavoured to give evidence truthfully and in general terms each witness gave evidence which that witness regarded as reliable. With only a few qualifications, the credit of the witnesses called by the respondents was not adversely criticised in submissions. Mr Diamond gave extensive evidence through his written statements, and only in a few respects was its reliability challenged.
The differences in the evidence, I consider, reflect the different focuses of the respective witnesses. From the Pets Paradise group witnesses, Pampered Paws was not perceived as other than a typical new franchisee. There had been many before. The antennae for potential issues was not highly sensitive. Matters which Ms Donnelly and Ms Campbell sought to raise were not perceived as indicating an important matter on behalf of Pampered Paws that it was intended to operate somewhat outside or beyond a typical Pampered Paws business. On the other hand, I consider that Ms Donnelly (as she herself said) had a wider business plan for Pampered Paws than that of a routine Pets Paradise business. I have briefly referred above to those plans. Ms Campbell called it a grand vision. She also had in mind that Pampered Paws might hold a range of stock beyond, or different from, that which was typical of a Pets Paradise business. The comments she and Ms Campbell made to various Pets Paradise group employees were not, however, seen by them as signals of that potential source of difficulty and so were not addressed in advance of the commencement of the Pampered Paws business. It is also fair to observe that I formed the impression that both Ms Donnelly and Ms Campbell were both strong-minded but not confrontational people, so that the way they conveyed their issues in the course of their discussions was not particularly forceful; that is said by way of compliment, not criticism. My findings on disputed issues are informed by those considerations.
I also consider that, to some degree, both Ms Donnelly and Ms Campbell on the one hand and Mr Diamond on the other in the course of their evidence became a little dogmatic about the correctness of their respective legal positions. I do not think that reflects deliberate dishonesty on the part of any of them. It is understandable that, believing in the overall correctness of their respective positions, they might overstate or deal with certain material in a way which better accommodates those positions. I have also taken that into account in making my findings on disputed issues.
(c) The Sequence of Signing Documents
There is no dispute about the documents which Pampered Paws, Ms Donnelly and Ms Campbell signed. However, there is some issue about when they were signed. The resolution of that dispute may partly inform whether the causes of action relied upon by the applicants are made out.
Reference has been made above to the 7 October 2005 letter from PPQ.
In its precise terms, the letter was sent by the corporate counsel for the PPQ confirming the receipt of the Acknowledgment of Receipt of Disclosure Document, Confidentiality Agreement and the deposit of $10,000. It noted that Pampered Paws was purchasing the Burleigh Heads Pets Paradise business. It referred to the enclosed documents: Franchise Agreement with Guarantee and Indemnity (the Franchise Agreement Guarantee); copy of Lease; Assignment of Lease, Global Guarantee and Indemnity and Acknowledgment (Global Supply Agreement Guarantee); Global Terms of Trade (Global Supply Agreement) and tax invoices for the legal costs. It required both copies of the Franchise Agreement and the Franchise Agreement Guarantee to be executed and returned. I find that the Lease was not included; it was not then in final form. As to the Global Supply Agreement, the letter said:
You must sign and return the Global Pet Products Pty Ltd Conditions of Sale and the Guarantee and Indemnity. The Conditions of Sale outline the terms and conditions under which Global will supply products for your business.
Under “conditions precedent” it also said that Pampered Paws must attend the Pets Paradise training program in Melbourne, and that PPQ would not consent to the franchise until that training had been given. It enclosed tax invoices for legal costs to be paid to PPF. That is a clear enough indication that, in a technical legal sense, the Franchise Agreement whenever executed by Pampered Paws would not give rise to enforceable legal obligations until PPQ itself agreed to the franchise, and that it was contemplated that its agreement would not be given until after the training period. As noted, the training period took place in early February 2006 (there is some dispute about whether the training was completed on 6 February 2006 or later, but I do not need to resolve that).
I find that the Global Supply Agreement was not enclosed, but that the Assignment of Lease and the Global Supply Agreement Guarantee were enclosed with the 7 October 2005 letter, as well as the Franchise Agreement. That is because I find for reasons appearing below that each of those documents was signed by Ms Donnelly on 15 November 2005, and no other occasion is suggested on the evidence when they may have been received by her. The Assignment of Lease was to be held in escrow by PPQ against the failure of the Pampered Paws business.
The Global Supply Agreement Guarantee is a pro forma document with a short schedule setting out the particulars applicable to Pampered Paws. It is of four pages. Page 1 leaves space for the date to be inserted. The date inserted is 15 November 2005. The Schedule has typed as the customer Pampered Paws and as the guarantor Ms Donnelly. The name of Ms Campbell has subsequently been printed in handwriting as a guarantor whereas Ms Donnelly’s name (under the name Campbell) has been typed in. The execution clause on page 4, as with the Schedule has provision for Ms Donnelly to sign seal and deliver the document in the presence of a witness. She has signed it in the presence of her husband. There is no date indicating the date of signature, other than the primary date on page 1. Underneath the typed place for the execution of the document by Ms Donnelly has been printed in handwriting a signing space for Ms Campbell. Her witness is Nabil El-Hissi. It has been signed by her.
Subsequently on 7 December 2005, Ms Paric apparently on behalf of PPQ confirmed receipt of the deposit, the signed Franchise Agreement and the signed Assignment of Lease. No reference is made to the Franchise Agreement Guarantee, the Global Supply Agreement or the Global Supply Agreement Guarantee.
Ms Donnelly said she put in the date 15 November 2005 on the Franchise Agreement and the Franchise Agreement Guarantee, although that was not the date that it was in fact signed by her, and on the Global Supply Agreement Guarantee. The Franchise Agreement is also signed by Ms Campbell, so both the Pampered Paws directors signed it. They also each signed the accompanying Certificates (also all dated 15 November 2005), namely:
·Franchisee’s/Guarantor’s Statement (signed twice by Ms Campbell and Ms Donnelly as both franchisee and guarantor) acknowledging having received the 2004 Disclosure Document and the Franchising Code of Conduct and having an opportunity to understand them before entering into the Franchise Agreement and the Franchise Agreement Guarantee;
·Solicitor’s Certificate (again signed twice by Ms Campbell and Ms Donnelly, as both franchisee and guarantor) acknowledging that they had been recommended to seek advice from a solicitor about the Franchise Agreement and the Franchise Agreement Guarantee and that they had elected not to do so;
·Business Adviser’s Certificate, in generally the same terms as the Solicitor’s Certificate but relating to advice from a business adviser and signed in the same way in relation to the Franchise Agreement and the Franchise Agreement Guarantee; and
·Accountant’s Certificate, in generally the same terms again but relating to advice from an accountant/tax adviser and signed in the same way in relation to the Franchise Agreement and the Franchise Agreement Guarantee.
Each of these Certificates was typed including the names of Pampered Paws as franchisee and Ms Donnelly (called Campbell) as a guarantor. Ms Campbell’s name was not typed, but obviously printed in handwriting later as a guarantor.
As noted, Ms Donnelly said she did not have those documents on 15 November 2005, and received them only on 6 February 2006 during the training in Melbourne. She identified that occasion by reference to when her mother Ms Campbell was also first required to be a guarantor. She accepted that, whenever she signed the documents, including both the Franchise Agreement Guarantee and the Global Supply Agreement Guarantee, she understood their effect. That expressly extended to an understanding that they included “mortgage type” security given over her personal assets including real estate in her name.
The respondents submitted that the documents generated in October 2007, when the applicants and Ms Donnelly’s husband together secured financing from the Bendigo Bank (including refinancing of the Pampered Paws borrowing from its then bank), also provide an insight into the awareness of Ms Campbell into the nature of the Franchise Agreement Guarantee and the Global Supply Agreement Guarantee and affect her credit. It is correct to say that, by that time, the applicants understood the effect of the two Guarantees. I do not think that material informs the state of knowledge of Ms Campbell about them in late November 2005 or at any time up to the completion of the training on 6 February 2006 when, on her own evidence, she signed them – albeit reluctantly – appreciating their terms and effect. I note there is some apparent inconsistency in the evidence about the profit and loss outcomes of Pampered Paws up to that time as given in evidence and as recorded in those bank documents. I have considered the submissions about that but I do not conclude that the apparent discrepancy is of any real assistance in assessing the credit of Ms Campbell or Ms Donnelly.
Both the Franchise Agreement Guarantee and the Global Supply Agreement Guarantee in essence do the same things but separately in relation to PPQ and Global respectively. The guarantors, Ms Donnelly and Ms Campbell, guaranteed the payment of monies due by Pampered Paws to PPQ and to Global respectively and the performance of its obligations under the Franchise Agreement and the Global Supply Agreement; each indemnifies PPQ and Global respectively against any losses caused by a breach by Pampered Paws of the terms of those agreements.
Each Agreement contains the following clause (clause 3.11 in the Franchise Agreement Guarantee and clause 3.10 in the Global Supply Agreement Guarantee):
The Guarantor hereby agrees to charge his/her property, both real and personal, and including any future property as security in favour of the [Franchisor/Supplier] for my debt owing to the [Franchisor/Supplier] by the [Franchisee/Customer] and authorises [the [Franchisor/Supplier] to register a caveat in respect of this charge over any such property.
The applicants consulted an accountant before proceeding finally to sign the Franchise Agreement. By report of 9 November 2005, the accountants provided a “Compilation Report” which contained projected Balance Sheet, Cash Flow, Profit & Loss and Funds Flow Forecasts as well as extensive other data apparently for the period between March 2006 and June 2007. The report was based upon information provided by Ms Donnelly and Ms Campbell. Upon the projections provided in the accountant’s report, the proposed franchise business for Pampered Paws appeared to be a potentially profitable one. It did not turn out that way. One major difference between the projections and the actual figures is that the sales levels did not reach anywhere near the projected sales figures. At this point, it is not necessary to look further into those matters.
In addition, on 15 November 2005, Ms Donnelly and Ms Campbell as the directors of Pampered Paws signed resolutions by which Pampered Paws became the trustee for the LJ and E Campbell Trust and that Trust was established. There was no evidence to suggest that the dates of those documents is not correct. It is a logical step in the process of Pampered Paws becoming a Pets Paradise franchisee to set up the trust or business structure in which it was to operate. Subject to other events, including formally signing the Lease of the proposed premises, the next step would sensibly be the signing of the Franchise Agreement and associated documents.
In that context, it is not clear why Ms Donnelly was so sure that the Franchise Agreement and the Certificates referred to, the Franchise Agreement Guarantee and the Global Supply Agreement Guarantee were not signed by her on or about the same occasion. The hand printed name of Ms Campbell on the two Guarantees is consistent with the oversight of not including her as a guarantor and director and that omission being identified later by one of the representatives of the respondents (as was their evidence). It does not suggest that Ms Donnelly did not sign those documents at an earlier date.
The circumstances in which Ms Donnelly and Ms Campbell signed the Global Supply Agreement and the Global Supply Agreement Guarantee (and when her name was added in hand printing on those documents and on the Franchise Agreement Certificates) are, to some degree, contentious.
Simon Gell was the in-house lawyer for the Pets Paradise group between October 2004 and February 2006. Mr Gell was replaced by Mr El-Hissi in that month. Mr El-Hissi left that employment in May 2008.
In late January 2006, Mr Gell reviewed the Pampered Paws documentation. He saw that the Franchise Agreement had been duly signed. The letter of 7 December 2005 from Ms Paric indicates it had been signed by 7 December 2005. As prepared and typed, it appears to be a pro forma agreement with the particular data in a Schedule, and a page for the “Signing Clauses” which was also typed so that the directors of Pampered Paws (who were not specified by name could sign it. Mr Gell also saw that the typed versions of the Certificates referred to above had been signed only by Ms Donnelly, and the Franchise Agreement Guarantee and the Global Supply Agreement Guarantee had been signed only by Ms Donnelly. He realised that Ms Campbell’s name would have to be added to those documents, and that she would have to sign them. There were other documents which were required to be signed, including the Global Supply Agreement and its Credit Application.

At a meeting in Melbourne on 30 January 2006, Mr Gell told Ms Donnelly and Ms Campbell that Ms Campbell would have to sign the documents she had not signed, and that he would prepare the other documents to be signed by them. Other matters relating to the then proposed lease were also discussed. He then prepared the further documents for execution, and left them for Ms Donnelly and Ms Campbell at the location of the training on 1 February 2006. They included the Global Supply Agreement. Mr Gell met Ms Donnelly and Ms Campbell again on 6 February 2006. Mr El-Hissi was also present.
Mr Gell by then had printed Ms Campbell’s name on the Franchise Agreement Guarantee and the Global Supply Agreement Guarantee and on the Certificates. There was some discussion about those documents. There is a dispute about whether he said that Ms Campbell had to sign them or there may be litigation (or words to that effect) or that it is the practice of the Pets Paradise group to obtain such guarantees from all directors. I do not need to resolve that dispute. The position was, in my view, that absent any direction to the contrary from Mr Diamond, they had to be signed by Ms Campbell. Ms Campbell then signed those documents, and Mr Gell witnessed her signature on the Franchise Agreement Guarantee. He also saw her add her signature to the Certificates. He acknowledged that an option was to have fresh Guarantees and Certificates prepared which accurately showed their date of signature. He also acknowledged that he could have had a separate Global Supply Agreement Guarantee prepared and signed by Ms Campbell to accurately show its date of execution. By adding her signature, the documents suggested she signed them on 15 November 2005. He then left the meeting. He did not in fact see Ms Campbell sign the Global Supply Agreement Guarantee, but she acknowledges she did so on that date. Mr El-Hissi agreed with that evidence. Mr El-Hissi witnessed her signature on the Global Supply Agreement Guarantee. Both Ms Campbell and Ms Donnelly also then signed the Global Supply Agreement itself; their signatures on that document were not witnesses.
Mr El-Hissi had only commenced working for the Pets Paradise group for a few days before that meeting. He did not read any papers in advance of it. He dispute that either he or Mr Gell made any threats to induce Ms Campbell to sign the documents on that occasion, or that he demanded that she sign the Global Supply Agreement Guarantee. He did witness Ms Campbell’s signature added to that guarantee, but he gave evidence that he did not say or do anything to persuade her to do so.
Ms Campbell and Ms Donnelly gave a somewhat different version of that meeting. To the extent that their evidence differs from that of Mr Gell and Mr El-Hissi, I prefer their evidence about what happened at the meeting on 6 February 2006, with one qualification. The qualification is about whether the Franchise Agreement itself was signed by Ms Campbell or by both of them on that occasion. I find that it was signed by both of them on 15 November 2005. It was clearly signed by 7 December 2005. At that time, and indeed even to and after 6 February 2006, Pampered Paws had not finalised its lease for the premises with the operator of the Stockland Shopping Centre. That was known to the respondents. Both the applicants and the respondents were working to finalise that lease, and in the meantime Shopfitters was doing the fit-out.
I formed the impression in the course of the evidence of Mr El-Hissi that he did not have any detailed recollection of the meeting of 6 February 2006, but that he was largely reconstructing the events. That would be consistent with the fact that he had played no role in the events leading up to that meeting or indeed had prepared for the meeting. He made no note of what transpired at that meeting. From Mr Gell’s point of view, he was regularising the procedure which the respondents routinely would have imposed. I do not know whether it was commonplace for the evolution or the execution of documents to be progressively occurring quite close to the time of the anticipated start of the franchised business. In this particular instance, that was occurring. In my view, Mr Gell’s evidence demonstrated that he was simply anxious to complete so far as necessary his part in the process by ensuring the execution of all documents necessary on the part of the respondents, and to move on. Again, in terms of the more detailed conversations which then took place, in general terms I prefer the evidence of Ms Donnelly and more particularly Ms Campbell.
The one qualification concerns the Franchise Agreement itself. There was some evidence given by Ms Donnelly that the Franchise Agreement itself was signed on that occasion. I find that it was in fact signed on 15 November 2005. It was signed, in my view, at about the time that Ms Donnelly and Ms Campbell made the decision to go ahead with the proposed franchise. Previously, deposits of $10,000 and $8,000 had been paid, but they were still investigating the potential profitability of the franchise. They had procured the accountant’s report on 11 November 2005. They then had a consultation with the accountant. Shortly after that, a number of documents are dated 15 November 2006. In my view, those documents were in fact signed on that day by Ms Donnelly, including the Franchise Agreement Guarantee, the Global Supply Agreement Guarantee, and the Certificates, and the Franchise Agreement was then also signed by Ms Donnelly and Ms Campbell. As I have noted, the signing clauses for the Franchise Agreement did not nominate the directors of Pampered Paws by name but simply left places against the word Directors for the signatures of the Directors to be inserted on the signing page. The signatures were not witnessed. Ms Donnelly’s signature on the two Guarantees is witnessed by her husband, who was not present on 6 February 2006. Ms Campbell was a director of Pampered Paws. Ms Paric’s letter of 7 December 2005 indicates that the Franchise Agreement was signed by them. No other occasion for those signatures by Ms Donnelly and in one case by Ms Campbell has been identified.
I also find that the matter would not have progressed to the point of a training program unless and until at least some documentation had been received by the respondents, and in particular until the Franchise Agreement had apparently been duly executed.
Up to the time of that meeting, the Global Supply Agreement had not itself been executed and Ms Campbell had not signed the Certificates, or either of the Guarantees. In my view, on that occasion broadly in the circumstances she described she signed the Franchise Agreement Guarantee. On that occasion also, in my view, Ms Donnelly signed the Global Supply Agreement. There were other documents signed on that occasion. In essence, the documentation was complete. There remain the final negotiation of the terms of the Lease, the fit-out completion, and then the commencement of the business which was aimed for 8 March 2006.
Ms Campbell gave quite convincing evidence as to the circumstances of signing the two Guarantees. She says that she had not realised up to then that she would be required to sign the Guarantees, involving (as they did) the PPQ charge and the Global charge. Ms Donnelly had previously signed those agreements or guarantees after consulting the accountants, apparently without difficulty, and apparently in the day or two following receipt of the accountant’s report and meeting with the accountants.
I can understand Ms Campbell’s concern at being required to sign the Global Supply Agreement Guarantee and the Franchise Agreement Guarantee in their terms, particularly having regard to clauses 3.10 and 3.11 of those documents respectively. She says she was very upset to realise that she had to sign those documents and expressed her concern both to Mr Gell and to Mr El-Hissi. I accept that she did so. The precise terms of their conversations do not matter except that she was given to understand that, without those documents being signed the franchise to Pampered Paws could not go ahead. As I have noted, to Mr Gell that was the routine position. I am not satisfied that particular threats were made to her, as she claims, as that perception may have evolved over time, but I am satisfied she was in effect told that her signature was necessary for the franchise to be granted. What is apparent, however, is that Ms Campbell understood the effect of what she was signing, and that she nevertheless signed both of those documents. She had the option of not doing so. The consequence may have been that PPQ would no longer have offered the franchise to Pampered Paws, or alternatively that Mr Diamond may have authorised PPQ to offer the franchise to Pampered Paws based only on the signature of Ms Donnelly to those two documents. I have found that, from the point of view of Ms Campbell, she reasonably understood, as was the case, that the documents were presented to her on the basis that the Pets Paradise Group routinely required those documents to be signed. I find also that this was a routine requirement. That accords with the evidence of Mr Gell. That is precisely why he wanted those documents to have Ms Campbell’s signature on them.
I suspect it is not uncommon for potential franchisees of a Pets Paradise franchise (or indeed of other franchises) to reach a common understanding that the franchise would be granted, and then to proceed with matters such as lease negotiations and fit-out of the proposed leased premises before all the formal documentation is signed. That is what appears to have happened in this instance. The consequence is that, if the transaction falls through, the respective conduct of the parties must be considered to determine whether any loss has been suffered by the anticipatory conduct and, if so, where that loss should fall. In this matter, it is desirable to determine whether any of the conduct complained of has been made out against any of the Pets Paradise group before addressing such questions.
MISLEADING AND DECEPTIVE CONDUCT
The claims are based upon breaches of s 52 of the Trade Practices Act 1974 (Cth) (the TPA) as then in force. Reliance is also placed on s 51A of the TPA concerning representations as to future events. There is no dispute as to the applicable legal principles.
Some of the representations complained of are express and some are implied.
It is obviously necessary to look carefully at the Disclosure Document and the Franchise Agreement where the express and implied representations are said to be made.
Express Representations
The express representations are said by the applicants to have been made by PPQ and by PPF in the Disclosure Document provided to Ms Donnelly. The pleading of the applicants identifies three Disclosure Documents applicable at three different points in time (a 2003 Disclosure Document, a 2004 Disclosure Document, and a 2006 Disclosure Document). The Disclosure Document provided to Ms Donnelly and then to Pampered Paws and Ms Campbell is the document described as the 2004 Disclosure Document. For present purposes, there is no material difference in any of them. The express representations are also said to have been made in a pro-forma Franchise Agreement provided to Ms Donnelly by letter dated 22 September 2005, and used as the form of the Franchise Agreement duly executed by Pampered Paws, Ms Donnelly and Ms Campbell.
The pleaded express representations and their asserted inaccuracy is as follows:
(i) IT Visions System Representation
It is alleged that the Disclosure Document represented that each Pets Paradise business was supported by a “sophisticated computer reporting and management system”, and that, contrary to that representation, the computer reporting and management system recommended by PPFQ, namely the IT Visions System, was not a sophisticated computer reporting and management system. In particular, the particulars assert that the IT Visions System could not integrate debit and credit card processing; integrate accounting software; integrate general word processing and internet browsing software; generate purchase orders to any supplier other than Global, including any approved suppliers; track and manage inventory with accuracy; accurately record sales of items other than stock acquired from Global; and was therefore unable to generate accurate and meaningful management reports.
(ii) Exclusivity Representation
It is alleged that the Disclosure Document represented that the “Pets Paradise Corporate Image extended to some of the store’s retail products and point of sale items, many of which were exclusively packaged” for the Pets Paradise group. It is then alleged that only a small number of retail products or point of sale items were exclusively packaged for the Pets Paradise group. The particulars indicate that only 89 of the 2142 products available from Global from January 2006 were Pets Paradise labelled products, and of those Pets Paradise labelled products, the majority were in the “bird accessories” department (the pleading identifies the following departments: dog and cat accessories, bird accessories, fish accessories, reptile accessories, Natura pet products and small animal accessories).
(iii) Global Representation
It is alleged that the Disclosure Document represented that franchisees were not required to purchase goods from Global, but that contrary to that representation Pampered Paws was in fact required to purchase goods from Global. The particulars of that allegation are found elsewhere in the applicants’ pleading. Clause 9.11(a) of the Franchise Agreement provided that Pampered Paws would obtain all stock only from PPQ or its approved suppliers. Clause 9.1(b) provided that Pampered Paws would only use or sell stock approved in writing by PPQ. Clause 9.5 provided that Pampered Paws would maintain the minimum quantities and mix of stock prescribed in the Manuals or otherwise specified by PPQ from time to time.
One relevant manual was called the Instruction Manual (“Pets Paradise Instruction and Information Guide”) published in about January 2003 which was to offer a knowledge base of the products on offer to customers of Pets Paradise franchisees. It identified various product categories. It is said that its contents prescribed the mix of products to be maintained by Pampered Paws. It is also asserted that in about January 2005, PPQ participated in promulgating to franchisees a manual entitled “Store Standards Manual (January 2005)” (the Store Manual), made available to Pampered Paws through Retail Holdings website. It also referred to product categories, and is said to have prescribed the mix of stock to be maintained by Pampered Paws.
It is also alleged that Pampered Paws and other franchisees were given in hard copy and in electronic form a Global pictorial catalogue, and that the “approved stock list” provided first to Ms Donnelly and Ms Campbell in the course of training at Melbourne, but updated from time to time, included the Global catalogue, products referred to in other catalogues and products described and referred to in the instruction manual.
The nub of the allegations is that at all material times, Global was the only approved supplier of stock on the “approved stock list” other than livestock, plants, fish tanks, dog tags, collars and leads and produce. Consequently, Pampered Paws says that between 6 February 2006 and 31 December 2006 it submitted purchase orders to Global for various Global products (other than the category which were not available from Global) and paid for them. It has particularised the dates and numbers of the sale orders and packing slips, and of the payments in respect of them.
(iv) Recurring or Isolated Payments Representation
It is alleged that the Disclosure Document represented that “recurring or isolated payments payable by the franchisee to the franchisor or an associate of the franchisor ought to be collected by the franchisor or an associate of the franchisor for another person were the payments set out at paragraphs 12 and 13 of the 2004 Disclosure Document”.
It is then alleged that there were additional recurring or isolated payments to be made by Pampered Paws to PPQ or its associates, or to be collected by PPQ or its associates for another person, namely the cost of Allocated Stock supplied by Global, and an alleged licence fee payable by Shopfitters to Mr Diamond or an associate or Mr Diamond on account of copyright and/or design licence fees in relation to animal pens forming part of the fit-out by Shopfitters for the Pampered Paws shop. The first of those elements arises from clause 4 of the Global Supply Agreement requiring Pampered Paws, and other franchisees, from time to time to accept and pay for goods ordered on the franchisees behalf by Global (Allocated Stock), provided that the qualities were in the opinion of Global reasonably based on the particular franchisee’s store capacity. Secondly, it is alleged that the amounts paid for the fit-out of Shopfitters of $213,003 included an amount payable by Shopfitters to Mr Diamond or an associate on account of copyright and/or design fees in relation to animal pens forming part of the fit-out cost.
(v) Required Agreements Representation
It is alleged that the Disclosure Document represented that “the agreements which the Franchisee or its directors, shareholders, beneficiaries, owners or partners will be required to enter into under the Franchise Agreement were the agreements set out in pages 15 and 16 of the 2004 Disclosure Document”.
It is then alleged that there were other agreements which were required to be entered into by Pampered Paws, supported by its directors, under the Franchise Agreement, namely the Global Supply Agreement, the Global Supply Agreement Guarantee, including the Global charge, and the Franchise Agreement Guarantee to create a charge in favour of PPQ. The circumstances in which Pampered Paws was required to enter into the Global Supply Agreement are referred to above. It is alleged that the directors of Pampered Paws, Ms Donnelly and Ms Campbell, were required at the same time to guarantee the performance by Pampered Paws of the Global Supply Agreement, and to charge all of their real and personal property as security for any debt owing to Global. It is also alleged that it was a condition of PPQ entering into the Franchise Agreement that the directors of Pampered Paws should execute a guarantee in favour of PPQ to support any liability of Pampered Paws to PPQ by the Franchise Agreement Guarantee. That required the directors to charge all of their real and personal property as security for any debt owing to PPQ.
The letter dated 7 October 2005 concerning the Franchise Agreement stated that, where the franchise was to be conducted through a company, PPQ required each director of the company to sign a Guarantee and Indemnity in relation to the obligations of the company.
(vi) Integrity of the System Representation
It is alleged that in the Franchise Agreement it was said that “… it was essential to the quality and integrity of the system [that is the Pets Paradise system] that only approved stock, including pets, from approved quality suppliers was sold by the Franchisee”. It is then alleged that it was not essential to the quality and integrity of the Pets Paradise system that only approved stock from approved quality suppliers be sold by Pampered Paws because PPQ has never supplied pets and, further, has only approved businesses trading as “Aquarium Industries” and “Deep Water” as suppliers of fish, “Barossa Aviaries” as a supplier of birds, “Mervs Crazy Crabs” as a supplier of hermit crabs and “Pisces” as a supplier of crickets.
There is no dispute that the particular terms asserted in the Disclosure Document and in the Franchise Agreement giving rise to those representations is accurate. Nor is there any dispute that the words referred to mean what they say.

Those allegations will now be considered in turn.
IT Visions System Representation
The respondents dispute that the IT Visions System Representation was misleading and deceptive. If that representation relates to future matters, they also say that they had reasonable grounds for making the representation so that it should not be taken to be misleading.
At a general level, in my view the evidence shows that the IT Visions System was a computer reporting and management system with a number of functions which would lead to it being described as sophisticated. The managing director of both ITV Business and ITV Finance, Ms Mammarella, gave evidence which I regarded as reliable. Ms Mammarella has a degree in computer science. She worked for the Pets Paradise group from about 1991 to 1998, and then after two years working as the operations manager for Thompson Dale Corporation overseeing and administering various point of sale systems for its clients, she commenced her own consultancy group. In that capacity, she was asked by Mr Diamond to develop an alternative point of sale system for the Pets Paradise group and its franchisees. After some investigation, that involved developing a new system. In doing so, Ms Mammorella liaised both with Mr Diamond and his staff and with existing Pets Paradise franchisees. It was progressively introduced for Pets Paradise franchisees from 2004.
I shall not repeat the extensive functions the system has. They are described by Ms Mammorella in her evidence, and examples of the reports capable of being generated by the system are included in the evidence. I accept that those reports provide Pets Paradise franchisees with relevant key indicators relating to the performance of their businesses, as well as trading stock and animals sold by franchisees. They include inventory reports, sales reports, customer sales reports, profitability reports and more sophisticated data.
Ms Mammorella accepted that the system provided such information only for coded stock. The coded stock could include stock which had not been acquired from Global, but it required the coding to be given through Global so it required the stock to be “Global-approved stock”.
It is convenient to record at this point that I also accept Ms Mammorella’s evidence about the training she gave both Ms Donnelly and Ms Campbell in the use of the IT Visions System during their training in Melbourne in February 2006. It was fairly comprehensive. There was obviously a lot to go through. To the extent that Ms Donnelly and Ms Campbell were critical of this aspect of their training, I think it is more likely that they did not absorb fully all of the instruction they were then given. Certainly, there is no basis for concluding that Ms Mammorella did not provide what she considered as the appropriate and relevant training to use the system.
The quality of the IT Visions System was also attested, inter alia, by Shane McCarthy, who worked for the Pets Paradise group as its National Retail Manager until March 2006. He had a few meetings with Ms Donnelly and Ms Campbell about the prospects of Pampered Paws being a Pets Paradise franchisee, including during their training. I was also impressed by his evidence; it was given frankly and effectively.
I therefore conclude that, whatever operative difficulties Pampered Paws through Ms Donnelly or Ms Campbell may have had in their use of the IT Visions System, the IT Visions System Representation was not itself misleading or deceptive. If it were necessary to take the further step of regarding that representation as concerning future events, at least in part, on the basis of their evidence, I would also find that there were reasonable grounds for making it in the Disclosure Document. That accords also with the evidence of Mr Diamond, whose evidence on this topic I also accept.
I accept that Ms Donnelly and Ms Campbell nevertheless had difficulties with that system. However, I do not accept that that shows the representation to them was misleading or deceptive. Properly used, within the framework of a Pets Paradise franchise, the system could integrate debit and credit card processing; it could be integrated with other accounting software such as MYOB; it is compatible with word processors such as Microsoft Word; it could generate purchase orders for Global products and other approved products (with product codes); and it could manage and track inventories and sales of those products (but not products without a product code).
It may be that the difficulties experienced by Pampered Paws were because it relatively quickly began to stock products sourced elsewhere than from Global or products not approved by Global. That required use of the “miscellaneous stock” code. It is not necessary to find precisely why Pampered Paws had the difficulties referred to, but I suspect the extent of “non-approved” products may have played a significant role.
The submissions of the applicants assert that the IT Visions System “supported and reinforced a business system” that obliged Pets Paradise franchisees to purchase stock from Global, so that it “subordinated” the interests of franchisees to those of Global. The IT Visions System obviously was intended to operate to serve the interests of both the Pets Paradise group and its franchisees. The evidence of other franchisees indicates that it did so effectively. The general submission about subordination is made from the particular perspective of the applicants, but it does not focus on the terms of the representation as pleaded.
There was common ground on the evidence that the IT Visions System did not readily accommodate stocked products that did not have a product code assigned by Global. There was also common ground that the product code was assigned by Global either for Pets Paradise labelled or other products sold by Global or other “approved” products (that is, approved by Global), whether supplied by Global or by other approved suppliers. The use of the miscellaneous code and manual entry was required for other products, so the more non-approved products in stock the greater the use of the miscellaneous code and the less useful the overall data generated under the System itself. Products without a product code also could not be scanned, but required manual entry through the cash register. It follows that the IT Visions System was not intended for, or readily used, by the businesses that were not Pets Paradise franchisees. The less like a Pets Paradise franchise the Pampered Paws business became, the less useful the System. However, in my view, those matters do not make the representation misleading or deceptive for the reasons given. The complaints of the applicants are more relevant to the Global Representation.
It is convenient at this point to deal with a related factual dispute. Ms Donnelly gave evidence that, during discussions, Mr Diamond told her that Global had some 6000 items on its stock list so that there should be little need to go elsewhere for stock. She had some concerns about the range of stock it offered. There may well have been some discussion between Ms Donnelly and both Mr Diamond and Mr McCarthy (separately) during the training period about that Pampered Paws may wish to obtain stock beyond that available from Global. That is consistent with what I have found to have been Ms Donnelly’s initial plans to expand the range of services and products beyond those routinely offered by other Pets Paradise franchisees. One of those products was what Ms Donnelly called “premium dog foods”. Having the benefit of seeing the witnesses, I think there was a difference of perception between Ms Donnelly on the one hand and Mr Diamond and Mr McCarthy on the other about the plans Ms Donnelly had for Pampered Paws, so the conversations between them did not directly confront the prospect that a significant part of the plans for Pampered Paws extended beyond those of other Pets Paradise franchisees. I do not accept that Mr Diamond told Ms Donnelly or Ms Campbell that Pampered Paws could acquire its stock for the Pets Paradise franchise from whatever source it chose or in whatever quantities it chose. That would not accord with the Pets Paradise franchise system, and Mr Diamond wished to preserve that system. Nor do I accept that he told Ms Donnelly or Ms Campbell that the IT Visions System would operate effectively in an environment where significant stock quantities were acquired other than from Global or other approved suppliers.
In any event, for the purposes of considering whether the IT Visions System representation is shown to have been misleading and deceptive, I do not consider that that evidence of Ms Donnelly takes the matter further. It is not pleaded that any representation was made, except by the 2004 Disclosure Document, and those conversations, whatever their precise content, do not to my mind demonstrate either alone or in conjunction with other evidence that the pleaded representation was misleading or deceptive. It will be necessary to further consider that evidence in relation to the Global Representation.
Exclusivity Representation
Page 5 of the Disclosure Document stated that the Pets Paradise corporate image extended to some of the stores’ retail products and point of sale items, many of which were exclusively packaged for the Pets Paradise group.
As noted above, there were in January 2006 some 2,142 products available from Global to Pets Paradise franchisees, of which only 89 or thereabouts were Pets Paradise labelled products. It is also asserted, and not in issue, that of the Pets Paradise labelled products, about 51 related to bird accessories, 18 to dog and cat accessories, 12 to fish accessories and 8 to small animal accessories. There were no products within the categories of reptile accessories or Natura pet products which were Pets Paradise labelled.
The precise wording is:
The corporate image is also extended to some of the store’s retail products and point of sale items, many of which are exclusively packaged for the Group”.
As the respondents correctly point out, putting aside issues of causation and reliance, that representation could be misleading or deceptive only if:
·either the Pets Paradise corporate image did not extend to any of the retail products that could be stocked by franchisees; or
·amongst the retail products that bore the Pets Paradise corporate image, there were not many that were exclusively packaged for the group.
The uncontested findings about the number of products available from Global, and the number which bore the Pets Paradise corporate image, indicate that it is not the case that the Pets Paradise corporate image did not extend to any of the retail products that could be stocked by franchisees. Indeed, that was not the gravitas of the applicants’ claim.
The Global catalogue is an extensive document. It is in evidence. Ms Donnelly gave some evidence about it. It is fair to say that, in the catalogue, there are a number of products clearly packaged under the Pets Paradise name and corporate image. Ms Donnelly identified one or two products which she said were similar to other products on the market. There is no comprehensive and independent evidence which would indicate that only a very small number of products which are packaged under the Pets Paradise name and corporate image are products which are in fact otherwise available, or alternatively that the products otherwise available were of equivalent quality.
The cross-examination of Mr McCarthy also indicated that some of the products in the Global catalogue are available from other providers, and are not exclusive to Global. In those cases, Mr McCarthy said from his past experience working for the Pets Paradise group that he endeavoured by volume buying to secure prices better than those available elsewhere, and to pass on those savings to Pets Paradise franchisees. He said he endeavoured to ensure that products which were only available through Pets Paradise were marked as exclusive, and otherwise were simply marked as Pets Paradise products without claiming exclusivity.
It is necessary to go back to the terms of the representation in the Disclosure Document. It is correct that the corporate image of Pets Paradise is extended to some of the retail products available through Global and to its points of sale items. It is also said that many of those items are exclusively packaged for the group. It is not said that, inherently, those products in terms of quality or effectiveness are exclusive to Pets Paradise.
The applicants contend that that representation, properly understood, meant that most of the products supplied by Global were exclusive to Pets Paradise franchisees. I do not accept that that is the meaning which could reasonably have been given to that sentence in the Disclosure Document. To the extent to which it asserts exclusivity, it asserts exclusivity in the packaging. I do not know if the words were carefully chosen, but they are clear enough. In my view, the applicants have failed to make out that the representation conveyed that, or there was a real chance that it would convey, that the majority or a significant number of the products supplied by Global were themselves exclusive to Pets Paradise franchisees. In responding to the assertion in that way, I have endeavoured to apply the test as discussed in Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; and Australian Competition and Consumer Commission v Australian Dreamtime Creations Pty Ltd [2009] FCA 1545.
What has been shown is that relatively few of the products available from Global were labelled as Pets Paradise products, and of those which were so labelled probably some only were products which were not otherwise available from other suppliers, perhaps with different forms of packaging but in content the same. So much was acknowledged by Mr McCarthy, and to a degree by Mr Diamond. The evidence from Ms Campbell was part of the evidence which established that. Indeed, she had the opportunity to perceive that during the training period in early February 2006 before the commencement of the business. Ms Donnelly said that during a walk around the Global warehouse she appreciated that there were only a few products which were branded with the Pets Paradise logo.
For the above reasons, I do not consider that it has been shown that the exclusivity representation was misleading and deceptive.
Global Representation
The Disclosure Document states:
Global Pets Products Pty Ltd is one of the Approved Suppliers. The company is owned by Gary Diamond who is also its shareholder. The franchisees are not required to purchase goods from this company.
The contention of the applicants is that, in reality, all stock was supplied by or through Global and invoiced by Global. They say that there was no approval process for unapproved stock or if there was that it was controlled by Global. There was no evidence that a decision had been made to approve any unapproved products. Consequently, they contend that the representation was false or misleading or deceptive because Pampered Paws was required to purchase its stock from Global.
The applicants point out that the Franchise Agreement expressly obliged Pampered Paws not to change or modify any of the products, not to sell any products other than products approved by PPQ (clause 7.24), to obtain all stock (as defined) only from PPQ or its approved suppliers (clause 9.1(a)), and only to use or sell stock approved in writing by PPQ (clause 9.1(b)).
It is apparent, therefore, that whatever the representation, Pampered Paws was in effect obliged to obtain its stock only from PPQ or its approved suppliers.
Moreover, the Franchise Agreement required Pampered Paws to observe and comply with specified manuals (clause 7.30). One of the manuals is called the Instruction Manual. Relevantly, it prescribed the mix of stock to be maintained by Pampered Paws at material times. There was an Approved Stock List for the purposes of clause 9.1(b) of the Franchise Agreement. I find it was in essence the Global catalogue, although the evidence shows there were also lists of approved suppliers. It was provided to Pampered Paws through Ms Donnelly in the course of training at Melbourne in early February 2006. No other document was identified which might fit that description. I acknowledge that the respondents disputed that there was such a document as an approved stock list, although there is no dispute that the products in the Global catalogue were approved stock. There is no dispute that the stock referred to in the Global catalogue, and the categories of stock referred to in the instruction manual, was stock approved in writing for the purposes of clause 9.1(b) of the Franchise Agreement. I think the Global catalogue largely served the function of being the Approved Stock List.
The respondents’ answer is a straightforward one. Insofar as the Global representation is based upon clauses 7.5, 7.24(b), 9.1(a) and (b) and 9.5 of the Franchise Agreement, the applicants’ assertion is not correct. The Franchise Agreement operates according to its terms.
Secondly, the respondents say that there is no pleading that there was any oral direction to the applicants, in particular Ms Donnelly and Ms Campbell, either during the course of training or subsequently that they must use Global products. It is curious that it is not pleaded, given the emphasis that was attributed to evidence to that effect in the course of the applicants’ case. They both assert that, during the course of training, they were told that Pampered Paws must acquire only Global products.
Even though that was not pleaded, it is a significant contested section of the evidence. Upon careful analysis, I do not think that the evidence of Ms Donnelly and Ms Campbell goes so far as to support the fact that they were told that Pampered Paws must acquire its products or stock from Global. It is unclear from the evidence of Ms Donnelly whether she claims to have been told that Pampered Paws had to use Global for all its stock or as its main supplier. Ms Campbell says she was told that Pampered Paws should only purchase stock from Global or from approved suppliers. That is consistent with the Franchise Agreement. As clause 9.1(a) of the Franchise Agreement says, Pampered Paws must stock products supplied either by Global or approved suppliers, so there was a range of options available to it. It is also significant to note that, on Ms Donnelly’s evidence, she regarded Global as the buying arm of the Pets Paradise group, and its capacity to provide products was regarded as significant by her. Pampered Paws, Ms Donnelly and Ms Campbell all signed the Global Supply Agreement and Global Credit Application during the course of training. Thirdly, the fact is uncontested that, within a few weeks of commencing operating the Pampered Paws business, that business was stocking unapproved products and continued to do so without the approval of PPQ or Global for many months. By about the end of October 2008, almost all the Pampered Paws stock was unapproved. Despite that, Pampered Paws was permitted to continue to operate the Pets Paradise franchise over that time. There were occasions when representatives of PPQ, in routine consultations, expressed concern to Ms Donnelly or to Ms Campbell about the fact that Pampered Paws had such a range of unapproved stock. That, however, did not result in any action asserting a breach of the Franchise Agreement.
Pampered Paws also relies on the Instruction Manual and the Store Manual and the Approved Stock List. I have briefly referred to the contents of the Instruction Manual above. In my view, neither the Instruction Manual nor the Store Manual prescribe either the mix of stock to be maintained by Pampered Paws or other franchisees or more importantly require that stock be acquired only from Global. The Instruction Manual sets out types of products and services recommended to be sold or provided by franchisees. The Store Manual sets out the ideal floor plan and ideal wall layouts for Pets Paradise stores, including details as to how to best locate and position certain products generally stocked by Pets Paradise stores. The “Approved Stock List” is in fact in essence the Global catalogue. There are a range of products approved for sale by Pets Paradise franchisees in relation to or beyond Global products. They extent beyond livestock, plants, fish tanks, dog tags, collars and leads and produce as asserted by the applicants.

In my view, there was an element of compulsion to acquire stock from Global. The Global Supply Agreement was required to be signed before PPQ would formally have committed itself to the franchise. It was required to be signed because a significant part of the stock routinely expected of a Pets Paradise franchisee was available only from Global. There was an option for a not inconsiderable part of the stock to be available from other approved suppliers, but that does not diminish the point. It was also required to be signed because Global, for its part, as part of its operating systems had introduced the Allocated Stock program referred to above and which it expected its franchisees to participate in. I also do not think, upon the whole of the evidence, that there is any scope for accepting the contention of the respondents as a fall-back position, that Pampered Paws was required to sign the Global Supply Agreement but was not itself required to acquire goods from Global.
Of course, the fact that stock was acquired from Global does not itself indicate that that was done with an element of compulsion. Ms Donnelly accepted that one of the benefits of entering into the franchise was the availability of acquiring stock from Global, with what she understood (and probably correctly so) was its superior buying power together with its branding of Pets Paradise products. It is also correct, as the respondents pointed out, that evidence given from other franchisees indicated that they acquired most but not all of their stock from Global and acquired the balance of their stock in broad terms from other authorised or approved suppliers. That is of course either consistent with their preparedness to do so without compulsion, or consistent with the fact that they were required to do so. In their respective cases, they were simply prepared to do so but had not tested whether they were in fact required to do so. As I have also indicated, and as accepted by Mr Diamond, in reality Global was a wholesale acquirer and supplier of product to Pets Paradise stores. Subsequent conduct on the part of officers of the respondents who visited the Pampered Paws premises from time to time also confirms that there was considerable dissatisfaction with Pampered Paws continuing to stock and offer for sale non-approved product.
In my view it is plain that the Global catalogue was regarded as an approved stock list. It was used as the vehicle for the selection, under guidance, of the initial starting stock of Pampered Paws and subsequently for the selection of stock. The obligation under clause 9.1(a) of the Franchise Agreement obliged Pampered Paws to purchase its commencement stock from Global, at least largely, and it did so. In my view, it was an ongoing obligation to purchase a significant proportion of its stock from Global, and the balance from other approved suppliers.
The reality is also that, through the IT Visions System, and through the Pets Paradise system, there was little means by which non-approved product could usefully be acquired until it was approved. There was no means by which product codes for unapproved products supplied from unapproved suppliers could be given, and such stock could not function within the IT Visions System except under the miscellaneous code. Product codes for unapproved stock, as Ms Young said, would only be generated once the approval process was complete. In my view, the evidence of Ms Young, Mr McCarthy and Ms Illingworth all support that conclusion. Ms Beed’s evidence also supports the conclusion that the Global catalogue was a list of approved products available through Global, and there was little other documentation which indicated where other approved stock might be acquired from, other than the lists of other approved suppliers.
It is necessary to consider what in fact transpired. As I have noted earlier, in my view, Ms Donnelly (and to a lesser degree Ms Campbell, simply because she was less involved in the immediate proposed operations of Pampered Paws) had in mind at material times a range of activities for the Pampered Paws store which extended beyond those of a typical Pets Paradise franchise. She also had in mind that, therefore, Pampered Paws may wish to acquire products beyond those approved by the Pets Paradise group. I accept that there was a conversation between her and Mr Diamond on that topic during the training period. She says that, as a result of that conversation, she understood that Pampered Paws would be entitled to acquire unapproved products from a range of other suppliers, and that Mr Diamond would then somehow arrange for its approval unless there was particular reason not to do so. Mr Diamond disputes that. The difference in the respective versions of that conversation is probably because each of them had a different understanding as to the emphasis which the other was giving to the nature of the communication at the time. I have also considered whether there was merely a hope or expectation on the part of PPQ that Pampered Paws would purchase stock from Global, without any obligation or compulsion of the kind contemplated by s 47(6), the conduct subsequent to the grant of the franchise. That evidence indicates that, soon after the commencement of the Pampered Paws store, Ms Donnelly did commence to acquire product other than Global approved product and increasingly so over the next months. By about 30 April 2008, Pampered Paws no longer required Global approved product, but continued to operate as a Pets Paradise franchise. I do not think that evidence indicates that PPQ did not impose as a matter of compulsion the obligation to acquire a significant amount of stock from Global as a condition of it granting the franchise in the first place. It is obvious that the Pets Paradise group was aware of its obligations under the TPA and endeavoured, and understandably so, to steer a line which did not offend the TPA (see eg clause 26 of the Franchise Agreement). Thus, despite the relatively unequivocal comments made by various officers of PPQ or of the Pets Paradise Group both during the training period and then during visits to the Pampered Paws store, no action was specifically taken to terminate the Franchise Agreement or to give notice of breach of that agreement when (as progressively became apparent) Ms Campbell or Ms Donnelly persistently acquired non-approved product from suppliers. In my view, that was simply a consequence of Mr Diamond not wishing to test the enforceability of the compulsion which had been imposed by the requirement to execute the Global Supply Agreement and to acquire some stock, including Allocated Stock from Global and to acquire stock generally only from Global or other approved suppliers.
In my judgment, the conduct of PPQ and of the respondents or some of them, involved the necessary element of compulsion upon Pampered Paws to:
(a) acquire a significant part of its stock from Global; and
(b) acquire and use the IT Visions System.
I reject the submission that the grant of the franchise by PPQ was independent of those obligations for the reasons given, and I reject the submission that the acquisition of stock by Pampered Paws was an expectation only and that the acquisition and use of the IT Visions System was also only an expectation. The whole of the evidence, or more specifically and accurately, the findings I have made on the whole of the evidence, lead me to that conclusion. In the case of the IT Visions System, the letter of PPQ of 7 October 2005 was expressed in terms of a requirement. So too was the signing of the Global Supply Agreement. But of course the contents of that letter are but part of the relevant material: it includes the structure of the Pets Paradise group including its buying arm, the specific nature and purpose of the IT Visions System and the terms of the Franchise Agreement. The oral evidence of some of the witnesses called by the respondents, as noted, also supports that conclusion in relation to acquiring stock from Global. There was little discussion about the IT Visions System, although it was incorporated into the training program and no other system was suggested on the evidence as being a useful alternative system.
I do not accept that s 47(1) was contravened by PPQ in relation to the shop fitting supplied by Shopfitters. It is clear enough that PPQ expected and required the Pampered Paws franchised business to carry the Pets Paradise “brand” or appearance. PPQ approved the proposed fit-out provided by Shopfitters for that purpose. He was aware of its work, and that it had fitted out other Pets Paradise stores. He no doubt gave Shopfitters the opportunity to take on that job.
I do not accept that the use by Pampered Paws of Shopfitters for that task was one which PPQ imposed. I accept Mr Kersten’s evidence that he did not require that to occur. To the extent that Ms Donnelly and Ms Campbell gave evidence to the contrary, I think they are mistaken. It maybe that, as the circumstances evolved, Pampered Paws was not offered any other choice of shopfitter, but that is not the same as Shopfitters being imposed upon it as a pre-condition to the grant of the franchise. Pampered Paws might have got other quotes, or engaged another shopfitter, provided the required “brand” or appearance was achieved.
In my view, the required element of compulsion is not made out.
The parties are agreed that issues of loss and damage from breach of s 47(1) and (6) of the TPA should be considered separately after these reasons for judgment. However, there is one finding which I should make clear.
Mrs Donnelly gave evidence that, having received the Disclosure Document on 28 September 2005, she took comfort from it. She said she would not have proceeded with acquiring a Pets Paradise franchise but would have established an independent pet store with a MYOB point of sale system, had she known about the need to acquire and use the IT Visions System which was, in essence, only adapted to a Pets Paradise franchise, and had she known about the need to purchase most stock from Global. I do not accept that evidence. I consider that evidence is given with the benefit of hindsight. Ms Donnelly was made aware of the need to use the IT Visions System by the letter of 7 October 2005 and to acquire and sell only approved stock from an approved supplier by cl 9.1(a) of the Franchise Agreement enclosed with that letter. She made enquiries about Global, apparently prompted by that letter. The terms of the letter of 7 October 2005 are quite explicit: expressed as mandatory requirements. Ms Donnelly did not then embark on another path. She did not fully explore the IT Visions System, or look for alternatives. She did not, prior to commencing the Pampered Paws franchise business, take steps to learn about the capacity of the IT Visions System to operate with a business which was only partly stocked with Pets Paradise approved stock.
Subject to rejecting that claim, as I have indicated, I will give effect to the agreement of the parties as recorded in the order of 27 May 2010 about this part of the claim.
BREACH OF FRANCHISING CODE OF CONDUCT
Section 51AD of the TPA provides that a corporation, in trade or commerce, must not contravene an applicable industry code. The Schedule to Reg 3 of the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) constitutes the Franchising Code of Conduct (the FCC). It is accepted that it is an applicable industry code for the purposes of s 51AD: see s 51AE.
I accept the applicants’ contention that each of the respondents, including PR Holdings, is an “associate” of PPQ for the purposes of the FCC. PR Holdings’ status in that regard was put in issue in the pleadings. PR Holdings in clearly a related body corporate to PPQ and on the evidence of Mr Kilgour and Mr Diamond it is clearly a trading corporation. I find that it provided oversight of the franchise operations of the Pets Paradise group in the way that Mr Kilgour described. The oversight included some of what are called the “head office” services, including legal services in relation to the overall Pets Paradise franchising business.
There is a “technical” breach of the FCC pleaded: that the Disclosure Document did not disclose that PR Holdings was an “associate” of PPQ. It did not do so. I describe the breach as “technical” simply because I do not consider that that failure had any significance at all to any decision taken by Pampered Paws or Ms Donnelly or Ms Campbell in relation to the undertaking of the Pets Paradise franchise or to its operations or to the signing of any of the documents. The Disclosure Document disclosed the relationship between PPQ and Global and Mr Diamond, and there is no persuasive evidence to suggest that the express disclosure of the status of PR Holdings might in any way have been important to any of the applicants.
The remaining alleged breaches of the FCC are described in the written submissions of the applicants as the:
(a)       Goods Non-disclosure;
(b)       Goods Payment Non-disclosure;
(c)       Directions Security Non-disclosure; and
(d)      Global Security Non-disclosure.
The Licence Fee Non-disclosure allegation was not pressed.
There is a substantial overlap in the evidence applicable to those claims, and that applicable to the express misrepresentations said to constitute misleading and deceptive conduct. The submissions on these matters, too, were relatively brief or were made by reference to, and adoption of, the submissions made in relation to the claims based on misleading and deceptive conduct.
For the reasons which in essence are the same as the reasons above concerning the various claims under the Express Representations heading, I conclude that:
(a)the Goods Non-disclosure breach alleged is made out because Pampered Paws was required to accept Allocated Stock from Global, contrary to the Disclosure Document;
(b)the Goods Payment Non-disclosure alleged is also made out because Pampered Paws was required to accept and pay for Allocated Stock from Global, a matter not disclosed in the Disclosure Document;
(c) & (d)the Directors Security Non-disclosure and the Global Security Non-disclosure breaches alleged are made out because Ms Donnelly and Ms Campbell were each required to sign the Franchise Agreement Guarantee and the Global Supply Agreement Guarantee, and the execution of those documents was part of the package of documents required before the franchise would be granted.
There may be reason to decline to make orders as requested by the applicants in the light of those findings. Save for the breaches arising from the failure to disclose the Allocated Stock and to pay for it, I have concluded that each of Pampered Paws, Ms Donnelly and Ms Campbell had reason to be aware of the need to sign the Global Supply Agreement, and each of the Franchise Agreement Guarantee and the Global Supply Agreement Guarantee from 7 October 2005 (although the Global Supply Agreement had not been included with the letter of that date from PPQ). I have also found that they would each have signed those documents had their terms been disclosed in the Disclosure Document. Consequently, I do not consider that the breaches of the FCC in that regard are shown to have caused any loss to any of the applicants.
I have included in the orders the opportunity for the parties to address whether any declaratory orders should be made by reason of the breaches of the FCC I have found, and to address any issue of damages arising from findings relating to the failure to disclose the obligation to take and pay for Allocated Stock. The orders also give the parties the opportunity to further address any loss arising from the breaches of the FCC concerning “Directors Security Non-disclosure” and the “Global Security Non-disclosure” as they also relate to the Exclusive Dealing claim on which, to some degree, the applicants have succeeded. However, as I have already remarked, I have made some findings on that aspect of the claims which of course must form the platform on which any further submissions are based.
ACCESSORIAL LIABILITY
Mr Diamond accepted that he would be liable as an accessory for any loss and damage suffered by Pampered Paws, or by Ms Donnelly or Ms Campbell. At present, no damages are to be awarded by the orders made when these reasons for judgment are delivered, but the opportunity in limited respects is given to the applicants to pursue such a claim.
Similarly, I do not think that the submissions about the accessorial liability of the respondents other than Global (the applicants’ claim are primarily against PPQ) are presently confined enough to usefully address this in the light of the limited findings I have made in favour of the applicants.
The further submissions which I propose to allow the parties to make may address the accessorial liability of other respondents than Global. On the evidence of how the two arms of the Pets Paradise business intersected, and of the roles of PPQ and Global, I think at present that Global was an accessory of PPQ to the extent that PPQ has had findings recorded against it. The respondents may also wish to make further submissions on those matters.
UNPAID LABOUR CLAIM
Both Ms Donnelly and Ms Campbell have made claims for damages for unpaid labour each provided to Pampered Paws, and interest on those damages.
It is, in my view, clear enough that Pampered Paws did not operate in as financially successful way as Ms Donnelly and Ms Campbell had anticipated. Consequently, Ms Donnelly worked long hours for Pampered Paws without herself drawing any salary and overtime. Ms Campbell also provided her labour without drawing a salary and for increasingly long periods of time.
As I understand their respective claims, they are claims for damages on the basis that each of them relied upon the express representations, which are said to be misleading or deceptive. That was how the basis of their claim was put when they sought leave to amend the SFASC to include it.
In view of the findings I have made on those matters, I do not at present allow the unpaid labour claim. I am not satisfied that the conduct of the respondents or any of them caused the loss alleged. Where misleading and deceptive conduct has been made out, in my view there is no evidence which could enable the Court to attribute any particular part of the extensive hours worked by each of them to be a consequence of that conduct. The claim was presented on an “all or nothing” basis in the sense that it would be shown that the conduct giving rise to the causes of action induced Pampered Paws to undertake the Pets Paradise franchise and that, but for that offending conduct, it would not have done so. Whilst such a finding might be made on the basis of the favourable findings made in these reasons for the applicants, and as a consequence the unpaid labour claim might therefore be enlivened, it is not possible to further address it at present.
In those circumstances, I do not intend to determine the other issues raised in the submissions about the quality of the evidence and the legal foundation for the claim.
In my view, unless the applicants now seek to assert, by the further matters they are entitled to address by the orders made with these reasons, that the Court should conclude that Pampered Paws by wrongful conduct of the respondents was induced to accept the Pets Paradise franchise and that, but for that wrongful conduct, Pampered Paws would not have entered into the franchise, the unpaid labour claim must be refused.
LOSS AND DAMAGE
It is apparent from the above reasons that the applicants have succeeded only to a limited extent in their claims.
The orders to be made will give them the opportunity to consider how their claims for loss and damage might be refined and confined to the consequences of the wrongful conduct found to have been made out. They will also have to take account of other findings made on contentious issues.

At present, no orders for damages are made.
CONCLUSION
In relation to the misleading and deceptive conduct claims, I have concluded that only in one respect has the case of the applicants been made out. That is in respect of the Recurring or Isolated Payments Representation about the Allocated Stock provided by Global from time to time under the Global Supply Agreement.
It is not clear that Pampered Paws has suffered any loss as a result of that representation or its misleading character. The evidence focused more on the need to sign the Global Supply Agreement itself, rather than on that feature of it. The applicants in their closing submissions, did not focus on whether there was any evidence which specifically was directed to show that Pampered Paws had relied upon that limited aspect of the pleaded representations to its detriment, including whether Pampered Paws would have acted in any way differently if that limited matter had been disclosed to it. If the applicants wish to pursue that matter, I consider it desirable that they be given the opportunity to do so and, of course, for the respondents to reply. I suspect that it will be difficult for the applicants to show that, but for that misrepresentation, Pampered Paws would not have entered into the Franchise Agreement at all, although I have no concluded view on that question. If, as might be the case, Pampered Paws does not press the claim that it suffered particular loss by reason only of that conduct, the respondents may wish to make submissions – and the applicants to respond – on whether any merely declaratory orders should be made.
Accordingly, on that aspect of the claim, I propose to give the parties the opportunity to consider these reasons for decision before addressing how they wish the matter to further proceed.
I have also concluded that PPQ (and probably PPF) contravened s 47(1) of the TPA and the FCC in the respects referred to above. By orders made on 27 May 2010, the question of any loss and damage suffered by Pampered Paws as a result has been stood over. The parties will now need to consider whether any declaratory orders should be made, and if so, on what terms. They will also need to consider how the foreshadowed claim for damages by Pampered Paws might be pursued, especially having regard to the general finding about the extent to which it felt constrained in fact by that conduct. That may involve consideration of its claimed loss over separate periods of time by reference to any evidence about how Pampered Paws acted by reason of the contravention not simply at March 2006 but up to 31 December 2006.
In relation to each of those matters, also, there is or may be, a need to focus on which of the respondents should be held accountable. The respondents accepted that, in general terms, accessorial liability is not in dispute because of the nature of the Pets Paradise group. However, the submissions did not specifically address the accountability of particular respondents, whether as a principal or as an accessory, in relation to the confined contraventions which I have found.
In respect also of the Exclusive Dealing and breaches of the FCC, the orders now to be made will enable the applicants to consider these reasons, and then to determine the extent to which they pursue claims for declaratory relief and for damages.
The orders made on 27 May 2010 also indicated that the proceeding cross-vested to this Court (Supreme Court of Victoria Matter SCI D6019 of 2009) should be heard together with this action). The parties will now need to consider what, if any, further steps or submissions they wish to make in that action and what orders they seek in relation to it.
Probably more importantly overall is what should now be done with this proceeding as a class action on behalf of the Group Members. Although I have not fully considered that question, I suspect that the findings I have made in this matter in favour of the applicants will not be of much assistance to the Group Members. That may be wrong. The parties should, therefore, also be given the opportunity to consider the future path for this proceeding as a class action and to make such submissions as they may be advised on that question.
The orders will also give the parties the opportunity to consider how the related proceeding, transferred to this Court from the Supreme Court of Victoria, should now be dealt with.
The orders will also enable the parties to make submissions as to costs, although that may be better dealt with after any issues to be pursued in the light of these reasons have been resolved.

I certify that the preceding two hundred and eighty (280) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.
Associate:
Dated: 27 January 2012

Citation:		Pampered Paws Connection Pty Ltd (on its own behalf and in a Representative Capacity) v Pets Paradise Franchising (Qld) Pty Ltd (No 10) [2012] FCA 25
Parties:		PAMPERED PAWS CONNECTION PTY LTD (ACN 116 460 621) (ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY), ELIZABETH MARGARET MUIR CAMPBELL and LYNDA JANE ELIZABETH DONNELLY v PETS PARADISE FRANCHISING (QLD) PTY LTD (ACN 054 406 272), PETS PARADISE FRANCHISING (SA) PTY LTD (ACN 069 620 391), PETS PARADISE FRANCHISING (NSW) PTY LTD (ACN 060 679 647), GLOBAL PET PRODUCTS PTY LTD (ACN 005 666 599), PETS PARADISE (FRANCHISING) PTY LTD (ACN 006 626 455), PETS PARADISE PTY LTD (ACN 005 558 378), PARADISE RETAIL HOLDINGS PTY LTD (ACN 105 253 441) and GARY DIAMOND
File number:		SAD 142 of 2008
Judge:		MANSFIELD J
Date of judgment:		27 January 2012
Catchwords:		TRADE PRACTICES – proposed franchise – misleading and deceptive conduct alleged by failure to disclose various matters in Disclosure Document – adequacy of disclosed information – whether non-disclosures alleged were made out – whether the consequence of prompt subsequent disclosure and opportunity to inspect documents meant any non-disclosure in Disclosure Document had caused no loss TRADE PRACTICES – exclusive dealing – third line forcing by franchisor of products supplied by related company – note s 47 amended from 1 July 2007 such conduct no longer included with s 47(6) – whether loss proved
Legislation:		Federal Court of Australia Act 1976 (Cth) Trade Practices Act 1974 (Cth) Trade Practices Legislation Amendment Act (No 1) 2006 (Cth)
Cases cited:		Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 Australian Competition and Consumer Commission v Australian Dreamtime Creations Pty Ltd [2009] FCA 1545 Re Ku-ring-gai Cooperative Building Society (No 12) Ltd (1978) 22 ALR 621 Australian Competition and Consumer Commission v Bill Express Ltd (in liquidation) 180 FCR 105 SWVB Family Credit Union Ltd v Parramatta Tourist Services Pty Ltd (1980) 48 FLR 445 Stationers Supply Pty Ltd v Victorian Authorised Newsagents Association Ltd (1993) 44 FCR 35
Dates of hearing:	11 May 2010, 13-14 May 2010, 17-28 May 2010, 30 July 2010
Place:	Adelaide (via video link with Brisbane)
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	280
Counsel for the Applicants:	R Perry SC and C Coulsen
Solicitor for the Applicants:	Lynch Morgan Lawyers
Counsel for the Respondents:	P O’Sullivan QC and C Munt
Solicitor for the Respondents:	Donaldson Walsh

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	SAD 142 of 2008

JUDGE:	MANSFIELD J
DATE OF ORDER:	27 JANUARY 2012
WHERE MADE:	ADELAIDE (VIA VIDEO LINK WITH BRISBANE)

JUDGE:	MANSFIELD J
DATE:	27 JANUARY 2012
PLACE:	ADELAIDE (VIA VIDEO LINK WITH BRISBANE)