Rafferty v Time 2000 West Pty Ltd (No 4)

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FEDERAL COURT OF AUSTRALIA

Rafferty v Time 2000 West Pty Limited (No 4) [2010] FCA 725

Citation: Rafferty v Time 2000 West Pty Limited (No 4) [2010] FCA 725
Parties: PATRICK CAMPBELL RAFFERTY, SANTORA HOLDINGS PTY LIMITED ACN 128 467 550 and KARAVILLE HOLDINGS PTY LIMITED ACN 009 439 178 v TIME 2000 WEST PTY LIMITED ACN 127 893 270, TIME 2000 SYSTEMS (AUSTRALIA) PTY LIMITED ACN 127 853 614, TIME 2000 OPERATIONS (AUSTRALIA) PTY LIMITED ACN 128 700 541, EMBLETON LIMITED (A COMPANY INCORPORATED IN HONG KONG), STEPHEN GERARD DONOVAN and MADGWICKS
File number: SAD 122 of 2008
Judge: BESANKO J
Date of judgment: 13 July 2010
Catchwords:

TRADE PRACTICES – application for relief under s 87 of the Trade Practices Act 1974 (Cth) for misleading and deceptive conduct – where applicants entered into agreements with second to fifth respondents for the sale of portable accommodation units – where fifth respondent was a natural person and second, third and fourth respondents were corporations associated with him – where fifth respondent made representations to first applicant that prototype portable accommodation unit was under construction in China

Held: application allowed – representations as to prototype materially contributed to applicants entering into agreements – the applicants’ entry into the agreements was sufficient to establish that they suffered loss or damage – the fifth respondent was liable as being “knowingly concerned” in the contravention under s 75B(1) of the Trade Practices Act 1974 (Cth).

TRADE PRACTICES – application for relief under s 87 of the Trade Practices Act 1974 (Cth) for breach of s 51AD – where applicants entered into agreements with second to fifth respondents for the sale of portable accommodation units – where no disclosure documents provided as required if the agreements were a franchise agreement under the Franchising Code of Conduct – whether the agreements or one or more of them was a franchise agreement or agreement to enter into franchise agreement under Franchising Code of Conduct – whether agreement granted the right to carry on the business of offering, supplying or distributing goods or services under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor within clause 4(1)(b) of the definition of franchise agreement

Held: application allowed – agreements provided for matters such as a centralised bookkeeping and recordkeeping computer operation, the reservation to the franchisor of the right to screen and approve promotions, the prohibition of repackaging of products, suggested retail prices by the franchisor, a comprehensive advertising and promotional program by the franchisor, the division of a state into marketing areas, the establishment of sales quotas and the restriction on the sale of products without the franchisor’s consent – the fifth respondent was not liable as being “knowingly concerned” in the contravention under s 75B(1) of the Trade Practices Act 1974 (Cth).

TRADE PRACTICES – application for relief under s 159 of the Fair Trading Act 1999 (Vic) for misleading and deceptive conduct – where applicants entered…

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Details
Case
[2010] FCA 725
Decision Date

CaseChat Overview and Summary

The applicants, Rafferty, brought an application against Time 2000 West Pty Ltd and others for relief under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1999 (Vic), alleging misleading and deceptive conduct and breach of disclosure obligations under the Franchising Code of Conduct. The applicants entered into agreements with Time 2000 West Pty Ltd and others for the sale of portable accommodation units. The applicants claimed that Time 2000 West Pty Ltd and others engaged in misleading and deceptive conduct by making representations about the prototype unit and by failing to provide the required disclosure documents. The applicants also claimed that Madgwicks, a firm of solicitors who drafted the agreements, engaged in misleading and deceptive conduct by failing to advise the applicants that the Franchising Code applied. The court was required to decide whether the representations made by Time 2000 West Pty Ltd and others materially contributed to the applicants entering into the agreements, whether the applicants suffered loss or damage, and whether Madgwicks was liable for misleading and deceptive conduct. The court also had to determine whether the agreements were franchise agreements and whether Madgwicks was liable for breach of retainer.
The court found that the representations made by Time 2000 West Pty Ltd and others materially contributed to the applicants entering into the agreements, and that the applicants suffered loss or damage as a result. The court held that Time 2000 West Pty Ltd and Embleton were primary contravenors of the Trade Practices Act 1974 (Cth) and that Donovan was liable as a person involved in the contraventions. The court also found that the agreements were franchise agreements and that Time 2000 West Pty Ltd and Embleton were liable for breach of disclosure obligations under the Franchising Code of Conduct. However, the court dismissed the applicants' claims against Madgwicks, finding that the applicants did not have a reasonable expectation that Madgwicks would advise them on whether the Franchising Code applied and that Madgwicks owed a duty of confidence to Time 2000 West Pty Ltd and others. The court also dismissed the claims of Time 2000 West Pty Ltd and others against Madgwicks for breach of retainer and involvement in the contravention of the Trade Practices Act 1974 (Cth).
The court held that the applicants' claims against Time 2000 West Pty Ltd and others for contraventions of the Trade Practices Act 1974 (Cth) were valid and that Time 2000 Operations (Australia) Pty Limited was a proper party for the purposes of the relief claimed by the applicants. The court also held that the applicants' claims against Madgwicks under the Fair Trading Act 1999 (Vic) and the Trade Practices Act 1974 (Cth) must be dismissed. The court found that the cross-claim by Time 2000 Operations (Australia) Pty Limited against Rafferty must be dismissed. The court also dismissed the claims of Time 2000 West Pty Ltd and others against Madgwicks for breach of retainer and involvement in the contravention of the Trade Practices Act 1974 (Cth). The court held that s 75B(1) of the Trade Practices Act 1974 (Cth) does not enable the court to make orders for contribution or indemnity.
Each party is at liberty to make submissions on the final orders to be made in light of these reasons.

Orders

Orders of the court

1. Each party is at liberty to make submissions on the final orders to be made in light of these reasons.

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

Background

Background to the litigation

Madgwicks have brought a cross-claim and raised a setoff against the Donovan respondents. That cross-claim or setoff relates to legal fees of $315,369.05 allegedly owed by the Donovan respondents to Madgwicks. On 30 November 2009, I ordered that, pursuant to O 5 r 12(2) and O 29 r 2 of the Federal Court Rules, there be a separate hearing and determination of that issue and that it be subsequent to the hearing and determination of the remaining issues.THE FACTS A convenient starting point is a summary of the three agreements. Under the HOA, the parties agreed that a new company would be incorporated to market, sell and install MAUs in the State of Western Australia and in the Northern Territory for short term accommodation in the tourism and rural accommodation sectors and for remote area laboratories for use on mining sites (recitals C and D, clauses 4 and 7). The “Territory” is defined as:“the state of Western Australia and the Northern Territory, Australia but excluding an area comprising a radius of 15 kilometres from the central business district of Perth”.In the HOA the proposed company is referred to as “Time 2000 (WA/NT) Pty Ltd or similar”. The company which was in fact incorporated was T2W. It is convenient to summarise the HOA as if it referred to T2W. Under the HOA, Mr Rafferty agreed to pay into the trust account of Madgwicks, who were the lawyers for T2SA, what was called a seed fee of $200,000 immediately, and that seed fee would be paid to T2W on its incorporation (clause 2). T2W was to use that money to defray the costs and expenses of forming the company, the costs and expenses of engaging consultants to prepare documentation and commence working drawings for the prototype (as defined) and the costs and expenses of preparing the HOA and initial drafts of other agreements contemplated by the HOA. If the HOA was terminated the seed fee was to be paid to T2SA; it was not repaid to Mr Rafferty. The HOA provided that T2SA was to hold 51 per cent of the shares in T2W and a company to be incorporated by Mr Rafferty was to hold the other 49 per cent. The decisions of shareholders were to be made by simple majority (clause 4). The board of directors of T2W was to comprise one director appointed by T2SA and one director appointed by the company to be incorporated by Mr Rafferty. The first directors were to be Mr Donovan and Mr Rafferty. The parties agreed that the company to be incorporated by Mr Rafferty would pay $1,000,000 to the trust account of Madgwicks as a licence fee pending execution of a Rights Agreement and upon execution of the Rights Agreement the money would be paid to Embleton (clause 6.1). The company which was in fact incorporated by Rafferty was Santora and again it is convenient to summarise the HOA as if it referred to Santora. Under the HOA, the parties agreed that Santora would also pay $500,000 as working capital into an account to be established by T2W (clause 6.1). The parties agreed that Santora could be required to pay up to a further $3.3 million on the occurrence of certain events specified in the HOA and according to the times prescribed by the HOA for the production of modular building units (clause 6.3).

Evidence

Evidence Before The Court

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Decision

Reasons for decision

Secondly, the claim must fail for the reasons I have given in relation to the applicants’ claim against Madgwicks based on s 75B(1) of the TPA.Conclusions My conclusions are as follows. First, I state my conclusions on the applicants’ claims against the second to fifth respondents. Time 2000 Systems (Australia) Pty Limited, Embleton and Mr Donovan are liable to the applicants for contraventions of s 52 of the Trade Practices Act 1974 (Cth). Time 2000 Systems (Australia) Pty Limited and Embleton are primary contravenors and Mr Donovan is liable as a person involved in the contraventions (s 75B(1)). Time 2000 Operations (Australia) Pty Limited is a proper party for the purposes of the relief claimed by the applicants. The orders sought in paragraphs 1 to 7 inclusive of the Further Amended Application seem to be both within the scope of s 87 and appropriate, but I will hear the parties generally as to final orders. Embleton and Time 2000 Systems (Australia) Pty Limited are also liable to the applicants for a contravention of s 51AD of the Trade Practices Act 1974 (Cth). They are liable as primary contravenors. Mr Donovan is not a person who was involved in the contravention of s 51AD. The cross-claim by Time 2000 Operations (Australia) Pty Limited against Mr Rafferty must be dismissed. Secondly, I state my conclusion on the applicants’ claims against the sixth respondent. The applicants’ claims against the sixth respondent under s 9 and s 159 of the Fair Trading Act 1999 (Vic) and under s 75B(1) of the Trade Practices Act 1974 (Cth) must be dismissed. In the circumstances, it is not necessary for me to consider the sixth respondent’s submissions concerning proportionate liability under the Wrongs Act 1958 (Victoria). Finally, I state my conclusions on the claims of the second to fifth respondents against the sixth respondent. Those claims, being claims based on breach of retainer and involvement in the contravention of s 51AD of the Trade Practices Act 1974 (Cth), must be dismissed. I will hear the parties as to final orders, costs and any other matters.

Ratio Decidendi

Legal Principle Established

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