Pty Ltd

[2003] FCA 1231

FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Will Writers Guild

Pty Ltd [2003] FCA 1231

TRADE PRACTICES – application for compensation for loss and damage – contraventions of Pts IVB and V of Trade Practices Act 1974 – sale of franchise – false representations – failure to comply with Franchising Code of Conduct – whether party for whom compensation claimed copied respondents’ material to operate same or similar business – whether that party sustained loss or damage

Trade Practices Act 1974 (Cth) s 87(1A)
Trade Practices (Industry Codes – Franchising) Regulations 1998 (1998 No 162)

Australian Competition & Consumer Commission v Murray (2002) 121 FCR 428 referred to
Australian Competition & Consumer Commission v Murray (No 2) (2003) ATPR 41-927 referred to
Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 referred to

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v WILL WRITERS GUILD PTY LTD and SIDNEY JAMES MURRAY

T11 of 2001

WEINBERG J
3 NOVEMBER 2003
MELBOURNE (HEARD IN HOBART)

IN THE FEDERAL COURT OF AUSTRALIA
TASMANIA DISTRICT REGISTRY	T11 OF 2001

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANT

AND:

WILL WRITERS GUILD PTY LTD
FIRST RESPONDENT

SIDNEY JAMES MURRAY
SECOND RESPONDENT

JUDGE:

WEINBERG J

DATE OF ORDER:

3 NOVEMBER 2003

WHERE MADE:

MELBOURNE (HEARD IN HOBART)

THE COURT ORDERS THAT:

1.The respondents pay to Will Power International Pty Ltd (ACN 089 942 361) the sum of $137,697.

2.The respondents pay the applicant’s costs of and incidental to this proceeding.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
TASMANIA DISTRICT REGISTRY	T11 OF 2001

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANT

AND:

WILL WRITERS GUILD PTY LTD
FIRST RESPONDENT

SIDNEY JAMES MURRAY
SECOND RESPONDENT

JUDGE:	WEINBERG J
DATE:	3 NOVEMBER 2003
PLACE:	MELBOURNE (HEARD IN HOBART)

REASONS FOR JUDGMENT

1. This is an application by the Australian Competition and Consumer Commission (“the ACCC”) pursuant to s 87(1A) of the Trade Practices Act 1974 (Cth) (“the Act”) for compensation in favour of Will Power International Pty Ltd (“Will Power”) for loss and damage said to have been caused by conduct of Will Writers Guild Pty Ltd, the first respondent, which contravened Pts IVB and V of the Act, and to which Mr Sidney Murray, the second respondent, was said to be a party.

   The factual background

2. In 1999 the first respondent sold, throughout Australia, franchises to operate a will writing business.  In selling the franchises the respondents falsely represented to the prospective franchisees that the business could be lawfully carried on, as described.  In addition, the respondents failed to comply with the Franchising Code of Conduct in a variety of ways including failing to give relevant disclosure documents required by that Code. 

3. As a result of the false representations, proceedings were brought against the respondents under s 79 of the Act. After a lengthy hearing, they were each convicted by Heerey J, on 11 October 2002, of offences under s 59(2) arising out of the sale of franchises to each of six complainants: see Australian Competition & Consumer Commission v Murray (2002) 121 FCR 428. On 7 February 2003, his Honour imposed fines on each respondent, and ordered them to pay substantial amounts to five of those six complainants: Australian Competition & Consumer Commission v Murray (No 2) (2003) ATPR 41-927. In his reasons for judgment given when imposing penalties, Heerey J observed:

   “Since the business for which the franchise or licence was granted could not be carried on lawfully, there was a total failure of consideration.”

4. The orders made in relation to these five complainants were made under s 87(1).  The respondents did not oppose these orders.  In each case the amount of the order for compensation was the franchise fee paid by complainant, together with incidental expenses such as interest, printing, stationery costs and the like. 

5. Although application was made for an order under s 87(1) on behalf of the sixth complainant, Will Power, Heerey J declined to determine that application.  The amount sought was $137,696, a figure that was one dollar out because of an arithmetical error.  However, his Honour noted that the respondents alleged that the two individuals behind Will Power, Mr Andrew Fisher and Mr Paul Mansfield, had copied or adapted the first respondent’s material to run a successful will writing business and had been selling booklets and will kits in the course of that business as recently as December 2002.  Messrs Fisher and Mansfield disputed the allegation.  His Honour concluded that the matter raised “quite complex evidentiary and legal issues”, and that it was not appropriate to resolve those issues by granting or refusing the discretionary summary remedy conferred by s 87(1).  He therefore made no order, but indicated that the complainants and the respondents could pursue such other remedies as they may be advised. 

6. It should be noted that his Honour’s decision to refuse to entertain an application for summary relief under s 87(1) was made in the context of a criminal proceeding.  It is well accepted, in that context, that summary orders for compensation of victims are not generally made in circumstances where there is a serious dispute about quantum.  Such matters are normally referred to the civil list for determination. 

7. After his Honour had sentenced the respondents, civil proceedings, which had earlier been instituted by the ACCC against them, fell to be determined. In those proceedings, it was alleged that the respondents had contravened s 51AD of the Act, which provides that a corporation must not, in trade or commerce, contravene an applicable industry code. Section 51AD falls within Pt IVB, which defines “industry code” as a code regulating the conduct of participants in an industry towards other participants or consumers in the industry. It was alleged that the first respondent failed to comply with the requirements of a Franchising Code of Conduct that had been prescribed for the purposes of that Part, that Code being set out in the Trade Practices (Industry Codes – Franchising) Regulations 1998 (1998 No 162). The particulars of the breach were that the first respondent did not give to, or receive from, Messrs Fisher and Mansfield, and Will Power, certain documents as required by that Code before entering into franchise agreements with them. It was also alleged that the respondents contravened ss 52 and 53(g) of the Act by falsely representing that a person who was not a qualified legal practitioner could carry on their will writing business.

8. The civil proceedings were all but settled before Marshall J when, on 2 May 2003, his Honour ordered, by consent, that certain declarations be made. The declarations included findings that the first respondent had contravened the Franchising Code of Conduct in breach of s 51AD when, as franchisor, it entered into a franchise agreement with Messrs Fisher and Mansfield and Will Power without giving them a disclosure document in accordance with Annexure 1 to the Code, and a copy of the Code itself, and without receiving from them certain written acknowledgements and signed statements. The declarations also included a finding that there had been a false representation that the will writing business could be carried on in the relevant State by a person who was not a qualified legal practitioner, thereby contravening ss 52 and 53(g). The second respondent was found to have been involved in each of these contraventions within the meaning of s 75B(1).

9. Marshall J made orders for the determination of the dispute between the ACCC and the respondents as to whether Will Power had suffered loss and damage by the contravening conduct.  It is that issue which is the subject of this proceeding. 

   The applicant’s case

10. Will Power purchased franchises of the will writing business for New South Wales and the Australian Capital Territory.  The ACCC contends that as a result of not being able to carry on that business, and not being able to sell sub-areas to sub-franchisees, Will Power suffered loss and damage. 

11. The loss and damage claimed is set out in an affidavit of Mr Fisher sworn on 29 May 2003.  In substance, Will Power claims for two payments of franchise fees of $65,000 each, the first made on 7 October 1999 and the second on 3 November 1999.  When one adds to these fees payments for interest on borrowings, rent on premises, stamp duty, advertising, telephone, printing, stationery, electricity, the cost of a trade show and petrol, total expenditure is said to have come to $148,362.  Some income was derived by Will Power from operating the will writing business before that business was terminated.  The amount was $10,665.  The net loss claimed, therefore, was $137,697.

12. The applicant contends that the issue in this application is relatively straightforward. Section 87(2) specifies the types of orders that can be made under s 87(1A). These include, under s 87(2)(d), an order directing the person who engaged in the conduct, or a person who was involved in the contravention constituted by the conduct, to pay to the person who suffered the loss or damage the amount thereof. The amount of that loss or damage was said to be verified by the affidavit of Mr Fisher, and was calculated in conformity with the principles laid down by the High Court in relation to claims under s 87(1A) in Marks v GIO Australia Holdings Limited (1998) 196 CLR 494. The only point taken in opposition to the claim was an allegation made by the second respondent, in somewhat vague terms, that Messrs Fisher and Mansfield had utilised some of the documentary materials that Mr Murray had provided to franchisees to assist them in establishing what Mr Murray described in an affidavit sworn on 20 June 2003 as “a very successful business”. The applicant submitted that Mr Murray’s claims were irrelevant, as well as baseless.

    The respondents’ case

13. It was submitted on behalf of the respondents that the Court should decline to make an order in favour of Will Power, in the exercise of its discretion, because it could not be said that Will Power had suffered any loss or damage by reason of the respondents’ contraventions of the Act. In the criminal proceeding, Heerey J had declined to make such an order because the dispute between Messrs Fisher and Mansfield on the one hand, and the respondents on the other, raised complex evidentiary and legal issues which should not be dealt with by the use of the summary procedure under s 87(1). It was submitted that the same position applied in relation to the applicant’s attempt to invoke that procedure in the context of the civil proceedings that it had also instituted.

14. In support of that contention, it was submitted that the evidence showed that, unlike the other franchisees, Will Power had not sustained any loss or damage. Will Power, under the business name of WilPaC, had simply taken over the will writing business that had been the subject of the abortive franchise, cleansed it of those features that rendered it in breach of various provisions of the Act, and thereafter operated that business, at least from 15 February 2000 until 31 January 2001, as a successful venture.

15. It was submitted that one of the principal documents created by the first respondent was a “blue book” which contained detailed instructions as to how to go about drafting a will.  That book was part of a “will kit” that was included in the material provided to franchisees.  What Messrs Fisher and Mansfield had done was to produce their own version of the blue book, described as the “WilPaC Do It Yourself Will Kit for Couples”, modelled closely upon the blue book.  A copy of the WilPaC book was tendered, and I was invited to conclude that various passages contained within it were essentially copied from the blue book.  Particular emphasis was accorded to an “Executor’s Memorandum” which Mr Murray initially claimed was identical to a document that he himself had prepared, and provided to Messrs Fisher and Mansfield, at their request, in December 1999.  However, when cross-examined upon this document, Mr Murray resiled from that claim, and acknowledged that he and Messrs Fisher and Mansfield had jointly prepared it. 

16. I was next invited to infer that as the WilPaC book was in its third edition, the business must be generating profits.  It was then submitted that there should be an account of these profits, and that any amount so generated should be deducted from the loss claimed to have been incurred.  It was further submitted that Messrs Fisher and Mansfield, and Will Power, should be refused compensation unless and until they provided to the respondents their tax returns, and other accounting records, which demonstrated that they had suffered a real loss.

    Conclusions

17. The evidence upon which the respondents relied to challenge Mr Fisher’s claim that Will Power had sustained a net loss of $137,697 was, to put it mildly, extremely tenuous.  Mr Murray was cross-examined briefly on his affidavit.  However, even in the short time that I observed him, he showed himself to be an evasive witness.  He also contradicted himself on a number of significant matters.  At one point, he said that he kept a copy of the original Executor’s Memorandum, with its distinctive formatting, but that he believed that it was with his former solicitors who would not return it because there were professional fees owing.  When pressed upon that point, he resiled from his initial account and conceded that those solicitors may not have any such document in their possession.  He said that he had not located a copy of the document himself, and it was unclear to what extent, if at all, he had searched for it. 

18. Likewise, as noted earlier, Mr Murray at one point maintained that he alone had devised the format in which the document was prepared.  Subsequently, he agreed that it had been a joint effort, with Messrs Fisher and Mansfield.

19. I was left with the clear impression that Mr Murray was a singularly unreliable witness.  I would not act upon his evidence unless there was other evidence that independently supported it. 

20. There are other difficulties with the respondents’ case.  It is palpably clear that the WilPaC book is not a copy of the “blue book”.  The fact that both books cover similar ground is not to the point.  Any self-help book dealing with the making of a will would be expected to contain much of the same material, including for example, definitions of the central concepts relevant to will making that are contained in both books.  Indeed, the evidence was that Mr Murray himself had drawn heavily upon other books of a similar type in preparing the “blue book”. 

21. As indicated earlier, Heerey J concluded that there had been “a total failure of consideration” in relation to the payments made by the franchisees.  That finding is equally applicable to Will Power, as it is in relation to the other complainants.  The sum of $130,000 was paid to the first respondent for two franchises that were essentially worthless because they could not be operated lawfully.  The fact that Messrs Fisher and Mansfield decided to embark upon a separate and distinct self-help will making venture, which was lawful, in an effort to salvage something from the wreckage, does not mean that they suffered no loss or damage.  The franchise fee paid was money thrown away.  Nothing of any real value was received in return.

22. If Mr Murray has a viable claim for breach of copyright, or some analogous cause of action, against Messrs Fisher and Mansfield, or against Will Power, there is nothing to prevent him from instituting proceedings against one or other of those parties.  However, his attempt to rely upon an ill-formulated, and inchoate, allegation that his concept has found its way into a successful business, and that therefore the owners and operators of that business have suffered no loss, cannot be accepted. 

23. I should add that there is no admissible evidence of any cogency to support the assertion that Will Power is, and has been, a successful business, generating profits that should be taken into account when determining whether it suffered loss by reason of the respondents’ contraventions of the Act.

24. I see no basis for refusing, in the exercise of my discretion, to award compensation to Will Power in the amount claimed.  There has been no challenge to the evidence of Mr Fisher that Will Power expended this amount.  Moreover, he was not cross-examined upon his denial of having copied, or otherwise misused, the respondents’ “blue book”.  I reject the respondents’ contention that the “blue book” can, in some way, be severed from the totality of the business sold to Will Power. 

25. I find that Will Power suffered loss or damage in the amount of $137,697 by reason of the respondents’ contraventions of the Act. I order, pursuant to s 87(1A), that the respondents pay that amount to Will Power. I also order that the respondents pay the applicant’s costs of and incidental to this proceeding.

I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Associate:

Dated:            3 November 2003

Counsel for the Applicant:	Mr M. O'Farrell
Solicitor for the Applicant:	Australian Government Solicitor
Solicitor for the Respondent:	Ms R.N. Ziukelis
Solicitors for the Respondent:	Broadbent Radich Sampson
Date of Hearing:	17 October 2003
Date of Judgment:	3 November 2003