Sanders v Glev Franchises Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Sanders v Glev Franchises Pty Ltd [2002] FCA 1332

TRADE PRACTICES – franchise agreement – whether pre-contractual representations constituting misleading and deceptive conduct – whether representations made – whether commendatory puffery – whether reasonable grounds for representation as to future matter – whether representations as to past and present matters untrue – reliance – collateral warranties – negligent misstatement

Trade Practices Act 1974 (Cth), s 51A, s 52, s 82(1)

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 referred
Ting v Blanche (1993) 118 ALR 543 discussed

Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) 46-179 referred

Banque Commerciale SA, en liquidation v Akhil Holdings Limited (1990) 169 CLR 279 applied
Cummings v Lewis (1993) 41 FCR 559 applied
Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525 distinguished
General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 applied
Pappas v Soulac (1983) 50 ALR 231 followed
Hanave Pty Ltd v LFOT Pty Ltd [1998] FCA 1051 referred
Kaytonruby Pty Ltd v Glev Franchises Pty Ltd [1998] FCA 650 referred
Sykes v Reserve Bank of Australia (1998) 88 FCR 511 applied
Gardner Corporation Pty Ltd v Zed Bears Pty Ltd [1999] WASC 1043 referred
Lobendhan v West Perth Investments Pty Ltd [1998] FCA 1257 referred
Holz v Lane [2002] WASCA 164 referred
Tomlinson v Cut Price Deli Pty Ltd (1995) ATPR (Digest) 46-151 referred
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 applied
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 applied
Fried v Dixie Holdings Pty Ltd [2000] FCA 1048 referred
Gould v Vaggelas (1985) 157 CLR 215 applied
Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471 applied
Tepko Pty Ltd v Water Board (2001) 206 CLR 1 referred
SanSebastian Properties Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 referred

JOHN EDWARD SANDERS & ANOR v GLEV FRANCHISES PTY LTD & ORS
VG 418 of 1992

KENNY J
29 OCTOBER 2002
MELBOURNE


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VG 418 OF 1992

BETWEEN:

JOHN EDWARD SANDERS
First Applicant

CHRISTOPHER ZIENKIEWICZ
Second Applicant

AND:

GLEV FRANCHISES PTY LTD
First Respondent

GABRIEL CHRISTOU
Second Respondent

LEO REYES
Third Respondent

JUDGE:

KENNY J

DATE OF ORDER:

29 OCTOBER 2002

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.        The application be adjourned to a date to be fixed.

2.On or before 12 November 2002, the parties file and serve proposed minutes of orders and any submissions they wish to make in support of the minutes. 

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


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VG 418 OF 1992

BETWEEN:

JOHN EDWARD SANDERS
First Applicant

CHRISTOPHER ZIENKIEWICZ
Second Applicant

AND:

GLEV FRANCHISES PTY LTD
First Respondent

GABRIEL CHRISTOU

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Details
Case
[2002] FCA 1332
Decision Date

CaseChat Overview and Summary

The case of Sanders v Glev Franchises Pty Ltd involved a dispute between the applicants, seeking damages for alleged misrepresentations made by the respondents, and the respondents, who denied liability and cross-claimed for costs. The applicants, who entered into a franchise agreement for a Pizza Haven restaurant, claimed that the respondents made negligent misrepresentations during negotiations. The case was heard in the Supreme Court of South Australia. The central legal issues revolved around whether the respondents made the representations pleaded in the statement of claim, whether they were negligent or without reasonable grounds, and whether they were incorrect.

The court examined the evidence and testimonies, including the discussions during the 5 September 1990 meeting, where the respondents presented information about the franchise opportunity and market conditions. The applicants needed to prove that the representations were made negligently and were incorrect. However, the court found that the applicants had not established that the respondents made the representations without reasonable grounds or that the representations were incorrect. Consequently, the applicants failed to demonstrate that the respondents were liable for the alleged misrepresentations.

In light of the findings, the court dismissed the application. The applicants were generally required to pay the respondents' costs, but the court decided to allow the parties to make written submissions on the matter of costs and the disposition of the cross-claim before proceeding further. The case was adjourned, and the parties were given a deadline to file and serve proposed minutes of orders and any submissions in support of the minutes.

Orders

Orders of the court

1. The application be adjourned to a date to be fixed.

2. On or before 12 November 2002, the parties file and serve proposed minutes of orders and any submissions they wish to make in support of the minutes.

Background

Background to the litigation

The respondents also cross-claimed for $5,000 in respect of legal costs and stock. They submitted, however, that this claim should not be considered at this stage of the proceeding (which was concerned only with their primary liability). The claim should, they said, be considered at the assessment stage of the proceedings. As the applicants did not oppose this course, I have proceeded on this basis.c: the facts(i)The Christous’ Pizza Haven business In October 1984, the second respondent, Gabriel Christou, and his three brothers (Evan, Bill and Louis) opened an eat-in and take-away restaurant at Glenelg in South Australia, under the name “Pizza Haven”. From the beginning, Gabriel worked full-time in the business. Evan began working full-time in the business in August 1985. Bill joined in January 1986, and Louis, in January 1987. The restaurant seated about 120 people. Take-away sales comprised about 20% of sales. In July 1985, the Christou brothers expanded the business to include home deliveries of pizzas. They subsequently opened five more Pizza Haven outlets. These outlets were located in or near Adelaide, at Christies Beach (October 1985); Colonel Light Gardens (December 1985); Findon (March 1986); Glenunga (July 1986); and Modbury (October 1986). Employee managers managed these five new stores. Unlike the Glenelg restaurant, the new outlets focussed on home delivery and take-away sales of pizza. (ii)Development of the Pizza Haven Franchise Franchise Developments Pty Ltd (“Franchise Developments”), which was liquidated in 1997, provided franchise consultancy services. The Christous approached Franchise Developments in 1986, to discuss the development of a Pizza Haven franchise. Evan Christou met Bruce Robinson, an employee of Franchise Developments, in Melbourne on 17 September 1986. Five days later, Robinson met Evan and Bill Christou, in order to obtain information about the Pizza Haven business. Towards the end of September (around 24 September 1986) Franchise Developments submitted a “Franchising Feasibility Programme”, which included a proposal for a “Feasibility Study” and the creation of a “Franchising Programme”. Another employee of Franchise Developments, Tino Bettiol, met Evan, Bill and Gabriel Christou in Adelaide on 3 October 1986, in order to obtain further information about their business operations. About a fortnight later, Franchise Developments submitted an initial draft of a “Pizza Haven Franchise Feasibility Study” (“the feasibility study”). Franchise Developments subsequently revised the draft following a meeting with the Christous in Adelaide on 23 October 1986. The revised version of the feasibility study was dated November 1986 and consisted of about 51 pages. The study described its first two objectives in the following terms:1.The primary objective of this study is to examine the feasibility and scope of applying franchising to the Pizza Haven retail home delivery and take-away business as an effective strategy to increase and secure Pizza Haven’s presence in the South Australian market and expand nationally by initially penetrating the Victorian market.2.If effective, franchising should enable the Pizza Haven organisation to expand its retail base and generate additional income in the form of Franchise Fees and Service Fees (Royalties) … .

Evidence

Evidence Before The Court

Taylor also recalled informing Reyes that his aim was to own two or three Pizza Haven stores, and that he planned to approach a Pizza Hut store manager to act as a day-to-day operations manager for a multiple store operation, although he could not recall whether he had said anything about the manager he had in mind (who at that time was running a Pizza Hut store in the Bentleigh area). c) Evidence of Reyes In his first witness statement, Reyes gave a detailed account of the 5 September 1990 meeting, which took, he said, about 90 minutes. He said: By way of introduction, I asked questions of Mr. Sanders and Mr. Taylor, such as what work they did, whether they were married with children, why they were looking at franchising and what their plans were for a franchise. I can recall Mr. Taylor saying that he was experienced in franchising, and that he had managed a McDonald’s outlet for some years. I can remember that this information impressed me as to his suitability. We also talked about Phillip Morris, where they told me they worked in managerial roles. In fact, I had worked there and we chatted about my time there. I can recall there was some discussion about their wives wishing to work in a franchised business. I can recall thinking that Mr. Sanders and Mr. Taylor seemed to have a good management background … .In talking with Mr. Taylor and Mr. Sanders, I recall going through the usual procedure which I followed with every potential franchisee. I talked about franchising in general. I then talked about FD, and our role in assigning franchises, and I gave information about FD’s clients. I then talked about Pizza Haven in general terms, ie. the franchise opportunity was in connection with a pizza home delivery chain which had been operating successfully in Adelaide and was expanding into Melbourne.I can recall I had a map at the meeting which showed a division of territories for Melbourne. The map has been provided to FD by Pizza Haven with the territories allocated. I estimate that the map was about 1.5 metres by a metre in size. This map was used to copy territory maps for franchise agreements. The map was marked with territories which had been already been allocated with a red sticker on the territory. I cannot remember any details concerning the discussions about territories, beyond showing the map with what was available.… I mentioned to Mr. Sanders and Mr. Taylor that I was acquiring a Pizza Haven store myself, and that I was keen on the Pizza Haven franchise concept.Also at the time of this meeting, I had access to Pizza Hut sales information and household details … . I cannot recall precisely how I got this information, but we had been dealing with people who were franchisees for Pizza Hut and who provided this information at the time. … .I recall discussing the Pizza Haven map and the Pizza Hut turnover information with Mr. Sanders and Mr. Taylor. I said that the areas not marked on the map with a red sticker were available. … . I said that the Pizza Hut turnover, which I believe I showed to them …, showed that an established Pizza chain was operating what appeared to me to be a successful business in Melbourne, and that I believed there was room for a new chain in the Melbourne market. I also mentioned that the franchisor organised a live to air (on FM radio) store promotion for new franchisees, which it was about to do for a new store in Knox.I also showed Mr. Taylor and Mr. Sanders a video of an advertisement for Pizza Haven which had been screened in South Australia, which I said showed the campaigns undertaken by Pizza Haven. I said that Pizza Haven was a good marketer of its product, and had utilised radio and television and leaflet campaigns in South Australia, and that it had plans to do the same in Victoria.

Decision

Reasons for decision

KENNY J
As already stated, the applicants have not shown that the representation pleaded in par 7(2)(e) was made without reasonable grounds. It was not, for that reason, made negligently. Further, as set out above, the applicants have not succeeded in establishing that any of the representations pleaded in pars 7(2)(b), 7(2)(e) and 7(3)(j) of the statement of claim were incorrect. o. conclusion For the foregoing reasons, the applicants have not made out their case that the respondents are liable to them in damages for misrepresentations made by them during the negotiations preceding their entry into the Ormond franchise agreement. I would, therefore, dismiss the application in this proceeding. In the ordinary course, the applicants would be required to pay the respondents’ costs. There may, however, be considerations that, in the circumstances of the case, support a costs order of a different kind. There also remains the respondents’ cross-claim. I would, therefore, afford the parties an opportunity to make written submissions on the question of costs and on the disposition of the cross-claim, if they so wish, before any further step is taken in the proceeding.

Ratio Decidendi

Legal Principle Established

Established by: KENNY J

Full text does not contain this section.