Pure & Natural (Aust) Pty Ltd & Anor v Graphio Pty Ltd & Ors Graphio Pty Ltd v Pure & Natural (Aust) Pty Ltd
[1997] FCA 94
•18 Feb 1997
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIAN DISTRICT REGISTRY ) No. VG 14 of 1993
)
GENERAL DIVISION )
B E T W E E N:
PURE & NATURAL (AUST) PTY LTD and
PURE & NATURAL DINERS PTY LTD
Applicants
- and -
GRAPHIO PTY LTD,
LEON DEKELL and JEANETTE DEKELL
Respondents
GRAPHIO PTY LTD
Cross-Claimant
PURE & NATURAL (AUST) PTY LTD and
PURE & NATURAL DINERS PTY LTD
Cross-Respondents
JUDGE: Jenkinson J
DATE: 18 February 1997
PLACE: Melbourne
REASONS FOR JUDGMENT
Trial of a proceeding and cross-claim.
The applicants, which are also the cross-respondents, are associated companies and were at relevant times members of a group of companies carrying on business in this country as manufacturers of food which the group sold both to consumers and to sellers of food under and by reference to trade marks based on the words "Pure and Natural". In a food court of a shopping centre at Chatswood, a suburb of Sydney, the group had for several years before December 1989, sold its own and other foods and drinks in a retail shop where the trade marks were
prominently displayed.
The respondent Leon Dekell, the husband of the second respondent, lived in England until 1980. He had gained a diploma in Industrial Engineering from London Polytechnic and a business diploma from the London School of Business Studies. Between 1973 and 1980 he had been the managing director, successively, of three clothing manufacturing companies. From 1980 to 1985 in this country he was first the general manager of a clothing production company in the Katies group of companies and then the controller of his own clothing manufacturing business. From 1985 until 1988 he conducted a retail health food business at Crows Nest in Sydney under the name "Simply Natural Health Foods." In 1989 he was unemployed and looking for a food business to acquire. In August 1989 he saw a newspaper advertisement of the applicants' Chatswood shop. In answer to his telephone enquiry he received from the applicants a document the material part of which reads:
"Estimated Operating Statement
Date:16/8/89
For:Chatswood
ACTUALW.E. 30/6/88 TO 1/7/89 (52 weeks) $ 384,124
$% 25% increase %
SALES (AVE BY WEEK) 7,387 9,234
COST OF GOODS 2,450 33.16 3,062 33.16
GROSS PROFIT 4,937 66.84 6,172 66.84
LESS OPERATING EXPENSES
CONT LICENCE FEE (5%) 369 5.00 462 5.00
ADVERTISING LEVY (2%) 148 2.00 185 2.00
RENT (INC. OUTGOINGS) 1,010 13.67 1,010 10.94
WAGES (STAFF ONLY) 1,035 14.01 1,035 11.21
HOLIDAY PAY 103 1.39 103 1.11
WORKCARE 38 0.51 38 0.41
INSURANCE 12 0.16 12 0.13
PACKAGING 292 3.95 365 3.95
ELECTRICITY 111 1.50 139 1.51
CLEANING & MATERIALS 102 1.38 127 1.38
TELEPHONE 20 0.27 20 0.22
MAINTENANCE
OTHER50 0.68 63 0.68
TOTAL OPERATING EXPENSES 3,290 44.54 3,559 38.54
EST. WEEKLY OPER. PROFIT 1,647 22.3 2,613 28.3
EST. ANNUAL OPER. PROFIT 85,644 38.93 135,876 61.76
THE ABOVE WEEKLY AND ANNUAL (ESTIMATED) TURNOVER FIGURES ARE BASED ON ACTUAL RESULTS. COST OF GOODS SOLD, GROSS PROFIT FIGURES ARE ESTIMATED VALUES BASED ON WHAT PURE & NATURAL BELIEVES MAY BE INCURRED BY INCOMING FRANCHISEES. OPERATING EXPENSES ARE PROJECTED ANNUAL FIGURES ON ACTUAL EXPENSES INCURRED DURING THE CURRENT YEAR. THESE FIGURES HAVE BEEN PREPARED BY PURE & NATURAL FOR THE PROSPECTIVE FRANCHISEE AND WHILST ALL CARE AND DILIGENCE HAS BEEN TAKEN TO ENSURE ACCURACY NEITHER THE COMPANY NOR ANY OF ITS EMPLOYEES ACCEPT RESPONSIBILITY IN ANY WAY WHATSOEVER TO ANY PERSON FOR ANY ERROR OR OMISSION."
Mr Dekell's reading of this document gave him an impression that nome of the amounts set out in the document was asserted to be a statement of historical fact, but that all were estimates. He asked the agent of the applicants with whom he was then dealing that he be furnished with the accountants' statement of the past profit and loss of the Chatswood business. The agent, Gerald Harms, complied with the request by sending Mr Dekell a document the material part of which reads:
"PURE & NATURAL - CHATSWOOD
ACTUAL TRADING AND OPERATING RESULT 52 WEEKS (W.E. 3/7/88 -
W.E. 2/7/89)
SALES$371,253
SALES371,253
TOTAL STOCK PURCHASES 148,850 50.1
GROSS PROFIT 222,404 59.9
EXPENSES
RENT AND OUTGOINGS 55,176 14.8
*WAGES (STAFF) 52,655 14.1
CLEANING918 0.2
ELECTRICITY 2,995 0.8
TELEPHONE 1,211 0.3
PACKAGING 8,208 2.4
MAINTENANCE 1,764 0.5
MISCELLANEOUS 6.3 0.2
TOTAL ACT. EXPENSES 123,492 33.3
ACTUAL OPERATING PROFIT 98,911 26.6
NOTE:ABOVE FIGURES EXCLUDE:
*MANAGER AND 2 I.C.'S AGES. LICENCE FEE AND ADVERTISING LEVY.
THE ABOVE FIGURES ARE BASED ON ACTUAL RESULTS AND WHILST ALL CARE AND DILIGENCE HAS BEEN TAKEN TO ENSURE ACCURACY NEITHER THE COMPANY NOR ANY OF ITS EMPLOYEES ACCEPT RESPONSIBILITY IN ANY WAY WHATSOEVER TO ANY PERSON FOR ANY ERROR OR OMISSION."
In early October 1989, before the second of the two documents had been received by Mr Dekell, he and Mr Harms met at the Chatswood shop. He expressed concern that what in the first document is called "est. weekly operating profit" would be insufficient to provide for his borrowing to take over the shop and for his own and his wife's remuneration. Mr Harms replied, as I find, that the business was being operated by a manager employed by one of the applicants' group who was young and inexperienced and that Mr Dekell should have regard rather to the amounts in the column headed "25% increase" because an owner who operated the business himself "should be able to achieve those figures." He added, as I find, that "at the present time, the business is doing $8,300 per week, not $7,387."
The latter statement by Mr Harms was not inaccurate. The takings of the business over the four weeks ending 7 October 1989 had averaged $8,351 per week. But that was much more than the average weekly takings for the calender year 1989 and more than the average for the last quarter of that year ($8,321). I do not accept the submission by counsel for the cross-claimant that what was said, in the context of a discussion about the document entitled "estimated operating statement", amounted to a representation that the recent takings indicated that over the financial year 1989/1990 average takings would be $8,300 per week. What was said represented no more than that in the immediate past the takings had averaged $8,300.
The statements made by Mr Harms at the meeting in early October 1989 were alleged, in a cross-claim by Graphio Pty Ltd against the applicants, to have constituted a breach of s.52(1) of the Trade Practices Act 1974 by the applicants, who are the cross-respondents. It was submitted by counsel for the cross-respondents that there were circumstances which precluded a finding that the statements were made. No allegation of any contravention of s.52 was made in the cross-claim on its first filing in April 1993, shortly after the commencement of the proceeding. The wording of the allegation in the amended cross-claim filed in October 1993 differed from the wording of the allegation in the final version of the cross- claim which was filed in March 1996. There had been no written complaint about such a statement until the filing of the amended cross-claim in October 1993, although Mr Dekell claimed to have often complained
orally to agents of the applicants when the takings of the business under his management failed to match what he claimed the applicants' agents had forecast.
A curiously worded affidavit sworn by Mr Harms and filed in June 1996 by the cross-respondents' solicitors may be understood as amounting to a denial that he made the statements attributed to him by Mr Dekell, although it contains no express denial of his having made the statements. Under cross-examination Mr Harms contradicted some of what is contained in his affidavit. He admitted that the so-called "estimated operating statement" was discussed by him and Mr Dekell at their meeting in October 1989. His recollection of events at the meeting was vague and his denial, if denial it could be called, of having made the statements attributed to him by Mr Dekell, was hesitantly expressed.
The differences in wording of the statements as variously pleaded do not in my opinion cast doubt on Mr Dekell's testimony: they are explicable by reference to differing perceptions by lawyers acting for the cross-claimant of instructions received. The failure to make written complaint is explicable by reference to the necessity under which the cross-claimant and its directors Mr and Mrs Dekell lay of maintaining with the applicants the continuing business relationship which began in December 1989 and continued until January 1993.
It was submitted by counsel for the cross-respondents that,
because Mr Dekell swore that at the meeting, and at all times before he received the second document entitled "actual trading and operating result", he placed no reliance on the contents of the first document, the conclusion should be drawn that at no time before causing Graphio Pty Ltd to enter into the contracts relating to the Chatswood shop on 4 December 1989 did Mr Dekell place any reliance on the statements by Mr Harms concerning the significance of the figures on that first document.
Before 4 December 1989 Mr Dekell had received the second document, the contents of which substantially accorded with the contents of the left hand column of figures on the first document, if note be taken of the slightly different periods covered by each. That circumstance leaves credible the evidence of Mr Dekell that when he made the contracts he did rely on Mr Harms's statements. The second document may be taken to have dissipated the distrust which the first document had evoked.
There is another circumstance that suggests the likelihood of some representation of the kind alleged to have been made by Mr Harms. One of the contracts executed by the cross-claimant under its seal witnessed by Mr Dekell on 4 December 1989 was a franchise agreement between the cross-claimant and Pure and Natural Diners Pty Ltd (at that time called Franchising and Marketing Company of Australia Ltd). Clause 11(i) of that agreement provided:
"11.In the event that:
...
(i)The Franchisee does not achieve a volume of gross sales exceeding the amounts specified in paragraph 13 of the Schedule over the period of time also specified in paragraph 13 of the Schedule.
...
THEN and in any such event FAMCO may at its option by notice in writing terminate this Agreement and the franchise granted without prejudice to any remedy FAMCO may have against the Franchisee."
Paragraph 13 of the Schedule reads:
"13.VOLUME OF GROSS SALES (Clause 11 (i)):
At the end of year 1 $416,000.00
At the end of year 2 $450,000.00
At the end of year 3 $486,000.00
and thereafter for each successive year of the term hereby created or any extension or renewal thereof the volume of Gross sales shall be an amount equal to the aggregate of the volume of the Gross Sales during the immediately preceding year and the amount which is the same as if interest at the rate of 10% per annum had been changed throughout the immediately preceding year on the value of gross sales and compounded annually during that immediately preceding year."
The franchise agreement provided for a payment of $30,000 for the grant of the franchise, and for other onerous obligations of the franchisee. On the same day the cross-claimant executed under seal witnessed by Mr Dekell an agreement to purchase the business being conducted at the Chatswood shop (plant equipment and goodwill) for $130,000. Having been given to understand - by the figures on each of the two documents furnished to him by Mr Harms - that the gross sales of the Chatswood business during the 1988/1989 financial year were not more than $384,000, Mr Dekell is unlikely to have caused Graphio Pty Ltd to enter into an agreement containing a provision in the terms of clause 11(i) of the franchise agreement unless he had been told something to give him an expectation that during the calendar years 1990, 1991 and 1992 gross sales would exceed, respectively, $416,000,
$450,000 and $486,000.
The franchise agreement was executed by Graphio Pty Ltd at a table outside the Chatswood shop on 4 December 1989. It had been previously executed by the franchisor. The franchisor's operations manager, David Brett, brought the agreement to the shop for execution by the franchisee. I find that, before causing the cross-claimant to execute the agreement, Mr Dekell asked Mr Brett, concerning the amounts specified in paragraph 13 of the Schedule: "I don't have to worry about these, they're achievable, are'nt they?" And I find that Mr Brett replied: "Don't worry, they are only base figures. You'll exceed them with ease".
Counsel for the cross-respondents submitted that Mr Dekell's failure in any way to allege that those words had been spoken until March 1996, when a further amended cross-claim was filed, precluded acceptance of Mr Dekell's testimony. Mr Brett had, before trial, refused to give to the cross-respondents' solicitors his account of what was said at the meeting. His employment by the franchisor had terminated in March 1990 in circumstances which made him resentful towards Mr Hans Lester, the principal director of the group of companies of which the cross-respondents were part. Mr Brett was called under subpoena to give oral evidence by counsel for the cross-respondents and was cross-examined by that counsel by leave granted under s 38(1)(a) of the Evidence Act 1995. He gave no evidence contradictory of Mr Dekell's evidence that the question and answer about the amounts in clause 13 of the Schedule had occurred. He said, in answer to the suggestion that they had occurred: "That's certainly possible, yes." He gave no evidence that would justify an inference that he or any other officer or servant of the group had on 4 December 1989 reasonable grounds for making the reply to Mr Dekell's question which Mr Dekell swore that he made. I should, counsel for the respondents submitted, disregard Mr Brett's evidence entirely as the testimony of a man grossly biased against Mr Lester.
The long delay in making the allegation of the question and answer I think, on a consideration of the written material filed by the solicitors for the respondents and cross-claimant, and of Mr Dekell in the witness box and elsewhere in the court room, to be explicable without diminution of confidence in Mr Dekell's honesty or recollection. I formed a favourable impression of Mr Dekell's honesty and recollection. But I thought it entirely possible that his mind had not before trial fully grasped what at trial proved to be the relevant factual issues, and I thought it not unlikely that those whose responsibility it was to elicit his instructions in respect of those issues had not succeeded in bringing his mind to bear on all that was relevant.
I think that Mr Brett, resentful as he plainly was of what he thought to be his ill-treatment by Mr Lester, was truthful in his evidence. It is however, unnecessary that I rely on any part of his evidence - either as to what happened on 4 December 1989 or as to whether a cross-respondent had reasonable grounds for making the statement I have found that he made in response to Mr Dekell's question. And I do not rely on his evidence as support for any finding.
Each of the statements which I have found to have been made by Mr Harms and Mr Brett respectively constituted a representation by the cross-respondents "with respect to [a] ... future matter", within the meaning of that phrase in s 51A(1) of the Trade Practices Act 1974. No evidence having been adduced that either cross-respondent had reasonable grounds for making either representation, those companies are deemed by s 51A(2), for the purposes of the application of s 51A(1) in relation to the cross-claim concerning each representation, not to have had reasonable grounds for making it, and each representation is to be taken as misleading for the purposes of s 52 of that Act. And I find that each representation induced Mr Dekell to cause Graphio Pty Ltd to make the agreements into which it entered on 4 December 1989. The parties agreed when the trial was nearing its end that the questions arising in the cross-claim other than questions of damages should be decided separately and before questions of damages. To give effect to that agreement and to give effect to my conclusions about the two representations so far considered I will make the following orders and declarations:
Order that questions, within the meaning of that word in Order 29 of this Court's Rules, arising in the cross-claim other than questions of damages be decided separately from and before the decision of any question of damages.
Declare that on a date unascertained in early October 1989 the cross-respondents engaged in conduct that was misleading in contravention of s 52(1) of the Trade Practices Act 1974, by reason of the representation of Gerald Harms to Leon Dekell on that date that an owner who himself operated the business then being conducted in the shop at Chatswood in the State of New South Wales where the representation was made should be able to achieve the figures set out in the third of four columns of figures on the document which is exhibit 1.
Declare that any loss or damage suffered by the cross-claimant by reason of its making the agreement which is exhibit B or the agreement which is exhibit C is loss or damage suffered by the misleading conduct aforesaid of the cross-respondents.
Declare that on 4 December 1989 the cross-respondents engaged in conduct that was misleading in contravention of s 52(1) of the Trade Practices Act 1974, by reason of the representation of David Brett to Leon Dekell on that date that the three amounts specified in paragraph 13 of the Schedule to the agreement of which exhibit C is a copy were only base figures which Leon Dekell would exceed with ease as operator of the business then being conducted in the shop aforesaid.
Declare that any loss or damage suffered by the cross-claimant by reason of its making the agreement which is exhibit B or the agreement which is exhibit C is loss or damage suffered by the misleading conduct aforesaid of the cross-respondents on 4 December 1989.
Clause 3(b) of the franchise agreement expressed a covenant by the franchisor:
"To provide initial training to the Franchisee at the level which in the opinion of FAMCO is adequate to properly instruct the Franchisee and his employees to efficiently conduct the franchised operation and to provide supplementary training during the term of the franchise pursuant to any written request for the same by the Franchisee as well as further training in any new techniques or skills developed by FAMCO subject always to the provisions of clause 2(w) hereof."
Clause 2(w) is a covenant in these terms:
"The Franchisee hereby covenants and agrees with FAMCO to promptly perform and observe the following covenants and conditions:
...
(w)The Franchisee and such number of his employees stipulated in writing by FAMCO shall participate in such initial training as FAMCO may from time to time consider necessary to instruct such trainees to efficiently conduct the franchised operation and in any further training required by FAMCO. All such training shall be at such location and for such duration as FAMCO shall prescribe. The Franchisee shall pay to FAMCO in advance the fees prescribed by FAMCO for providing any supplementary training requested by the Franchisee during the term of the franchise hereby granted. The costs of any travel, accommodation and meals required by the Franchisee or his employees in attending any such training as aforesaid shall be borne by the Franchisee."
The cross-claim includes the following:
"11.By Clause 3 of the Franchise Agreement the Cross-defendants agreed to provide to the Cross-Claimant advice, training and other information and services.
In breach of Clause 3 the Cross-Defendants failed to provide the Cross-Claimant with any or any adequate management sales and administrative knowledge, expertise and know how, initial training, operations manual, general advice and marketing support.
As a result of the Cross-Defendants' breach of the Franchise Agreement as referred to in the preceding paragraph the Cross-Claimant suffered loss and/or damage."
The evidence was that Mr and Mrs Dekell attended a shop in
Pitt Street Sydney conducted by the cross-respondents for about six hours on one day. There was no evidence which I am prepared to accept that there was a breach of clause 3(b). Mr Dekell was very experienced in business and not inexperienced in the conduct of a retail food shop in Sydney. And there was no evidence that the breaches alleged had caused the cross-claimant damage. Lack of training was alleged also as falsifying representations the making of which no evidence I am prepared to accept established, in these terms:
The Cross-Defendants, for the purpose of inducing the Cross-claimant into entering the Franchise Agreement made certain representation to the Cross-Claimant.
PARTICULARS
...
(c)That prior to completion of the Franchise Agreement the Cross-Defendants would provide to the Cross-Claimant the benefit of their management, sales and administrative knowledge, expertise and know how, initial training, their operations manual and general advice and marketing support so as to enable the Cross-Claimant to achieve average gross weekly sales of Eight Thousand Three Hundred Dollars ($8,300.00) per week.
...
(e)That the volume of gross sales specified in item 13 of the schedule to the Franchise Agreement were, for each year of the Franchise Agreement as specified, minimum gross sales figures and would be achievable by the Cross-Claimant.
(f)By implication that the Cross-Defendants would provide to the Cross-Claimant the benefit of their management sales and administrative knowledge, expertise and know how, initial training, operations manual and general advice and marketing support so as to enable the Cross-Claimant to achieve gross annual sales of not less than the amounts specified in item 13 of the schedule to the Franchise Agreement.
...
The Cross-Claimant, in fact, in deciding to enter the Franchise Agreement, relied upon the truth and accuracy of the representations particularised in paragraph 3.
In respect of the representations in paragraphs 3(a), 3(b), 3(c), 3(f), 3(h), 3(i) and 3(j) the said representations
were false, were to the knowledge or ought to have been to the knowledge of the Cross-Defendants false or were made with negligent and/or reckless indifference to their truth or otherwise.
PARTICULARS OF FALSITY
...
(c)Prior to completion of the Franchise Agreement the Cross-Defendants failed to provide to the Cross-Claimant any or any adequate initial training, management sales and administrative knowledge, expertise and know how, general advice and an Operations Manual.
(d)The Cross-Defendants failed to provide any or any adequate management sales and administrative knowledge, expertise and know how, training, an Operations Manual and/or general advice and marketing support to the Cross-Claimant.
...
The Cross-Defendants did not have reasonable grounds for making the representations referred to in paragraphs 3(c), 3(d), 3(e), 3(f) and/or 3(g) and in respect of those allegations the Cross-Claimant relies upon Section 51A of the Trade Practices Act.
Further and in the alternative the representations referred to in paragraphs 3(a) to 3(j) inclusive constituted misleading and deceptive conduct which was likely to mislead and deceive in trade or commerce in breach of Section 52(1) of the Trade Practices Act, 1975.
Further and in the alternative the representations referred in paragraphs 3(c) and 3(f) constituted conduct which falsely represented that the services were of a particular standard, quality, value or grade in breach of Section 53(aa) of the Trade Practices Act, 1974.
Further and in the alternative the representations pleaded in paragraphs 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) were false and misleading in a material particular and in breach of Section 59(2) of the Trade Practices Act."
None of those allegations was made out. Several other allegations of misrepresentation in the cross-claim were not established. Little attention to them was given at trial. There will be an order, following those I have already indicated, that further consideration of the cross-claim in respect of the causes of action the subject of the foregoing declaratory orders be adjourned to a date to be fixed, and an order that the cross-
claim be otherwise dismissed.
The franchise agreement provided for the term of the franchise to expire on 8 November 1992, one day before the expiration of the term of the lease of the shop held by the applicants' group from the freehold owner of the shopping centre. By letter dated 27 October 1992 Mr Dekell notified the group that Graphio Pty Ltd did not wish to continue the franchise relationship. Mr Dekell had been negotiating with the owner for a lease to his company, Simply Natural Pty Ltd, which received a formal offer of a lease on or about 6 November 1992 which was formally accepted by Mr Dekell for Simply Natural Pty Ltd on or about 12 November 1992. In October, November and December 1992 Mr Dekell and agents of the applicants' group were in communication about claims each side had for financial adjustments in respect of the termination of the relationship. And in November and December the two sides had discussions about the possibility that a replacement franchisee of the applicants might be found who would pay Mr Dekell's side a very substantial sum in consideration of the grant of a sub-lease or licence of the shop and sale of plant and equipment and goodwill. On 2 December 1992 Messieurs Lester, Curnow and Fitzmaurice, representing the applicants' group, held a discussion at the shop with Mr Dekell. The evidence as to what was said, both the oral evidence at trial of Messieurs Lester, Curnow and Dekell and a typed note of what was said, which Mr Curnow swore that he had made on 2 December 1992, was contradictory only on one point of relevance to the issues in the case. It was common ground that each side would be pleased if a replacement franchisee of the applicants were to take over the shop, but only if the financial interests of each side respectively were thought by that side to be served by the transaction. To the applicants' group it appeared that Mr Dekell wanted a greater payment than was likely to be acceptable to a sensible prospective franchisee. To Mr Dekell it appeared very important that he sell for a price sufficient to recoup a substantial part of the losses he had sustained in the conduct of the business. It was suggested by the applicants' group at the meeting - and the suggestion appears in the final version of the statement of claim as an allegation - that the conduct of the respondents in continuing after 8 November 1992 to carry on business in a shop displaying prominently the applicants' trade marks (particularly two large lighted signs) had for a legal consequence that "the Franchise Agreement was extended or renewed on the terms contained in the Franchise Agreement." There is no evidence that before the meeting of 2 December 1992 any conduct of any agent of the applicants' group had occurred from which a consensual extension or renewal of the franchise relationship might be inferred. Nor, as I find, did anything happen at the meeting of 2 December 1992 by reference to which the existence of any such a relationship might be found at any time after 8 November 1992. Mr Dekell denied at the meeting that any franchise had continued after 8 November, asserted the existence of the tenancy granted to Graphio Pty Ltd and explained that work was being carried out to enable "Simply Natural" signs to be erected in place of the applicants' signs. I accept Mr Dekell's evidence that at that meeting he was authorised by the applicants to leave the two prominent signs in place for the time being so that it would appear to any person inspecting the shop with a view to entering into a franchise agreement with the applicants, and to members of the public, that the shop was being conducted by or under an agreement with the owners of the well known trade marks which the signs displayed. That authority was not revoked before late January 1993 when the applicants commenced this proceeding and the signs were removed by Mr Dekell. The claims against Graphio Pty Ltd for service and other fees alleged to have accrued in respect of the period from 10 November 1992 until 18 February 1993 (on which latter date occurred the acceptance by Pure and Natural Diners Pty Ltd of what is alleged to have been the repudiation by Graphio Pty Ltd of the "extended" or "renewed" franchise agreement) will be dismissed, as will the claims against the other respondents as guarantors of those alleged obligations of Graphio Pty Ltd.
The claim by the applicant Pure & Natural Diners Pty Ltd for service and other fees accruing due by Graphio Pty Ltd under the franchise agreement between 10 August 1992 and the expiration of the term of that agreement, aggregating $5,944.91, was admitted, as was the claim against the other two respondents for the same amount under their guarantee of the performance by Graphio Pty Ltd of its obligations under that agreement. There will be judgment that the applicant Pure & Natural Diners Pty Ltd recover against the respondent Graphio Pty Ltd $5,944.91 and interest to judgment; and judgment that the applicant Pure & Natural Diners
Pty Ltd recover against the respondent Leon Dekell and Jeanette Dekell $5,944.91 and interest to judgment. I will hear the parties concerning interest.
Clause 2(z) of the franchise agreement provides:
The Franchisee hereby covenants and agrees with FAMCO to promptly perform and observe the following covenants and conditions:
...
(z)To pay on demand FAMCO's costs of the negotiations for and the preparation completion and stamping of this Agreement and its counterpart and the preparation of the exhibits thereto (if any) and in case of default by the Franchisee in performing or observing any covenant herein contained or implied or in consequence of any request by the Franchisee for FAMCO's approval or consent to any act, proposed act or matter in connection with this Agreement to pay to FAMCO all costs charges expenses and fees (including Solicitor and own client legal costs) to which FAMCO shall become liable in consequence of or in connection with such default or request."
Paragraph 18(k) of the claim pleads clause 2(z). A cause of action founded on clause 2(z) is pleaded thus:
"24.4Wrongfully and in breach of the franchise agreement:
...
(g)Graphio failed, neglected or refused to pay its contribution in respect to advertising and promotion and the service fees within seven days from the due date for payment.
PARTICULARS
Graphio failed, neglected or refused to pay to the applicants service fees from 3 August 1992 and failed, neglected or refused to pay advertising and promotion contributions from that date and continues to fail and refuse to pay any sum to the applicants. The applicants claim:
(i)For the period 10 August 1992 until 10 November 1992 the sum of $5,944.91 being $4,349.25 for service fees and $1,595.66 for advertising promotion;
(ii)for the period 10 November 1992 until 18 February, 1993 the sum of $5,908.35 being $4,220.25 for service fees and $1,688.10 for advertising and
promotion:
The applicants claim the total sum of $11,853.26.
The applicants claim interest on the sum of $11,853.26 at the rates prescribed by the Penalty Interest Rates Act from 10 August 1992.
The sum claimed from 10 November, 1992 is calculated on the basis of documents recently discovered by the respondents. Further particulars cannot be supplied until discovery is completed.
25.1Further in consequence of or in connection with the said default by Graphio the applicants have incurred costs, charges, expenses and fees to their solicitors in the sum of $51,296.25 as at 21 March, 1996.
25.2The respondents have failed and refused to pay the sum referred to in paragraph 25.1 hereof to the applicants despite demand in writing on 25 March, 1996.
25.3Graphio wrongfully and in breach of the franchise agreement has failed and refused to pay to the applicants the sum of $63,149.51 and is indebted to the applicants in that sum."
Evidence was adduced that by 17 August 1996 the appropriate amount in paragraph 25.1 was $54,661.65, in lieu of "$51,296.25 as at 21 March 1996." A consequential alteration of paragraph 25.3 was accordingly required. Such evidence as there was of the work in respect of which the "costs, charges, expenses and fees" were incurred indicated that all the costs and disbursements relating to this proceeding and the cross-claim were included in the sum claimed. The only default found "in consequence of or in connection with" which the "costs, charges, expenses and fees" are alleged to have been incurred is that which is specified in paragraph (i) of the particulars under paragraph 24.4(g) of the statement of claim filed 29 March 1996. No reference to the cause of action founded in clause 2(z) is found in the original statement of claim or in the originating application. In the defence to the statement of claim filed 29 March 1996 the respondent Graphio Pty Ltd admitted "that there is an amount
unpaid for service fees and advertising and promotion fees to 8 November 1992" and further pleaded:
"The First Respondent denies that, prior to the commencement of these proceedings, any claim or demand has been made upon the First Respondent for any or all of the amounts of $5,944.91, $4,349.25, $1,595.66, $5,908.35, $4,220.25 and/or $1,688.10.
I find that on or shortly after 9 December 1992 a letter dated 8 December 1992 in the following terms was delivered to the address specified at the head of the letter:
"The Secretary,
Graphio Pty. Ltd.
ACN 002 088 379
10th Floor, jardine Fleming House,
19 Pitt Street,
SYDNEYN.S.W. 2000
Dear Sir/Madam,
RE:OUTSTANDING FEES.
We refer to the above and note your Royalties and Advertising Levies account remain in arrears.
In accordance with your Franchise Agreement, Advertising and Promotion contribution and continuing Franchise Fee (Royalties) is due and payable by no later than 12 noon on Thursday following the conclusion of the immediately preceding week.
As you are in breach of the Franchise Agreement we hereby request payment in full to be received by this office within 7 days of the time of writing.
Should this not eventuate, our solicitors will be instructed to commence proceedings in accordance with the Agreement.
Yours faithfully,
PURE & NATURAL (AUST.) PTY. LTD.
(sgd)
HANS LESTER."
Mr Dekell may have forgotten this document by March 1996. At trial liability was admitted to suffer judgment for the amount of $5944.91 specified in paragraph (i) of the particulars under paragraph 24(g) of the statement of claim filed 29 March 1996.
Counsel for the applicants accepted "that a major part of the sum of the costs of default are not referable to the claim for debt" and submitted that one tenth of the sum claimed under paragraph 25.1 of the statement of claim, that is $5466, should be accepted as due under clause 2(z) of the franchise agreement.
No basis was stated for selection of one tenth. Each of the two components - "service fees" and "advertising and promotional contributions" - of the liability which is the subject of paragraph (i) of the particulars under paragraph 24(g) was payable weekly and was calculated as a specified percentage of gross sales during the preceding week. The amount of the liability could therefore be ascertained by the respondents. The franchise agreement imposed no requirement of a demand for payment. It was no doubt reasonable in all the circumstances to include the claim in this proceeding for an amount which would otherwise be recoverable in a court having jurisdiction to determine small debt claims. But the evidence does not enable me to make an informed estimate of "all costs charges expenses and fees (including Solicitor and own client legal costs)" to which the second applicant became liable" in consequence of or in connection with" the first respondent's default. Notwithstanding the relatively small sums of money involved, there may be nice questions involved in quantifying the liability under clause 2(z). If, for example, more was spent in costs to include the claim by a late amendment of the statement of claim than would have been spent to include the claim in the original statement of claim, is the difference between the two amounts a
sum to which the second applicant became liable "in connection with" the default?
The cross-claimant having at a very late stage of the trial been granted the indulgence of a separate hearing of the question of its damages, I think I should, even at this stage, offer a similar indulgence to the second applicant: a separate hearing of the question of the amount due under clause 2(z). If that course is not desired, I consider I should give judgment under that cause of action in the sum of $1000, which is my best estimate upon inadequate evidentiary material and my relatively uninformed impression of prevailing levels of costs. Perhaps the most satisfactory course would be agreement on the amount by the parties' solicitors. The question of interest must await determination of the amount of the liability under clause 2(z).
Very much in the forefront of the applicants' case when the proceeding was instituted were claims of infringements by the respondent of the first applicant's trade marks. Undertakings satisfactory to the applicants were offered by the respondents and on 18 February 1993 I accepted the undertakings as undertakings until the trial of the proceeding. The respondents were then and are now willing to give undertakings in the terms of the undertakings of 18 February 1993, but unlimited in time. If the first applicant desires that course, I will accept undertakings in those terms or make orders in the same terms. The applicants seek no other relief in respect of the alleged infringements.
There was also a claim for damages alleged to have been suffered by the applicants by the respondents' contraventions of s5.52(1) and 53(d) of the Trade Practices Act 1974 in continuing to trade in the shop after 8 November 1992 under the first applicant's trade marks. I find that those contraventions did occur, but that no damage by that conduct was caused to either applicant. Any damage caused by the contraventions on or before 2 December 1992 would have been recoverable. But after that date any damage would not have been caused by the conduct, but by the applicants' authorisation of the conduct.
The proceeding and the cross-claim will be stood over to enable the parties to consider these reasons and to prepare minutes of orders.
I certify that this and the preceding twenty-three (23) pages are a true copy of the reasons for judgment of his Honour Justice Jenkinson.
Dated:
Associate
Appearances
Counsel for the applicants: Mr R D Shepherd
Solicitors for the applicants: Aughtersons
Counsel for the respondents: Mr L Tyndall
Solicitors for the respondents: Duffield & Duffield
Dates of hearing: 26-29 August 1996
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