Space Planning Concepts v Elvaire and Anor. - [2001] FMCA 75

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SPACE PLANNING CONCEPTS v ELVAIRE & ANOR [2001] FMCA 75

PROCEEDINGS – Claims under Trade Practices Act and for breach of contract – assignment of franchise agreement – claim against assignees by franchisee in respect of breaches alleged against original franchisor – no novation – proceedings misconceived – dismissed.

Equity, Doctrines & Remedies, Meagher, Gummow & Lehane, 3^rd ed., para 691.

Applicant:

SPACE PLANNING CONCEPTS PTY LTD

Respondent:

ELVAIRE PTY LTD & ANOR

File No:

BZ 126 of 2001

Delivered on:

27 August 2001

Delivered at:

Brisbane

Hearing Date:

27 August 2001

Judgment of:

Raphael FM

REPRESENTATION

For the Applicant:

Mr C Freeman (Director)

For the Respondent:

Mr E DiZane (Director)

ORDERS

Application dismissed

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE

BZ 126 of 2001

SPACE PLANNING CONCEPTS PTY LTD

Applicant

And

ELVAIRE PTY LTD & ANOR

Respondent

REASONS FOR JUDGMENT

This matter was commenced by way of application in the Federal Court on 18 January 2001. It received its first directions hearing on 9 February. His Honour made orders, inter alia, that the parties could be represented by their directors. He later transferred the matter to this court where it has been case managed by the learned Registrar and by Federal Magistrate McInnis. Orders were made allowing documents in the form of letters to stand as pleadings, more affidavits were filed as well as bundles of documents, some completely extraneous to the issues. There is correspondence with the court and, it would appear, an unsuccessful attempt at mediation. All these efforts, genuinely made to assist the parties and deformalise the proceedings, have resulted in there being before me a file contained within a cardboard box folder measuring some 12 centimetres in depth and weighing five kilograms excluding the folder.
The application reveals a claim against the two respondents for misleading and deceptive conduct in breach of section 52 of the Trade Practices Act 1974 (C’th) and breach of contract It seeks relief by way of damages, interest and costs as well as a declaration that a franchise agreement be declared void ab initio. In documents which form part of its case the applicant alleges that there was no such agreement, so why this relief is sought is not clear. The affidavit filed with the application makes 20 claims by heading, and those claims are amplified in a written statement annexed.
The dispute revolves around the purchase by the applicant from a company known as Barry’s Australia Pty Limited, of a franchise to operate a home improvements, design and retail business known as “Barry’s, The Home Improvement Specialists”, previously known as “Mad Barry’s”. The purchase was negotiated between October 1998 and April 1999 when the franchise agreement was finalised. I inquired of the applicant’s director if the document was ever signed and he advised that it was not. He also informed me that the business began operating in December 1998.
The claims made by the applicant follow a regrettable pattern common to unsuccessful franchise operations.
No training or operations manual provided;

Turnover figures not coming up to those projected;

Non-disclosure of declining business by franchisor;

Non-disclosure of necessity to hold a builder’s licence;

Misappropriate of funds in set-up costs;

Misleading promotional material;

Misleading information about membership of the National Kitchen and Bathroom Association;

Insufficient advertising funds.
These problems had all evidenced themselves before September 1999.
In that month, Barry’s Australia sold its business to Elvaire Pty Limited which, with its associated company PEACS Pty Limited, took over the position of franchisor. The arrangement was made known to the applicant by way of a letter dated 3 September 1999 which said:
“Barry’s Australia Pty Limited has sold Barry’s, The Home Improvement Franchise to Elvaire Pty Limited which is controlled by Elvio DiZane and his wife Clare.
As part of this sale, all of Barry’s Australia Pty Limited’s rights under the franchise agreement between you and Barry’s Australia Pty Limited have been assigned to Elvaire Pty Limited which has licenced [sic] those rights to PEACS Pty Limited. PEACS Pty Limited is also controlled by Elvio.
As part of Elvio’s commitment to revitalising the group it is intended that all franchisees will enter into franchise agreements upon the same, or substantially the same, terms …”
On 11 September 1999, Mr Freeman, for the applicant, wrote to Mr DiZane as follows:
“Dear Elvio
Notice of Resignation:
I hereby give notice to resign as a franchisee from effect from 01 November 1999. As there is no franchise agreement in place, we trust there are no further binding arrangements that exist.
Could you please make all the necessary arrangements in this regard.
Thanking you.
Yours sincerely,
Colin Freeman.”
Mr Freeman, in a letter of 8 May 2001 which stands as the applicant’s reply says that:
“The resignation was oral and given on 6 October at a meeting.”
I do not believe any thing turns on this dispute.
Mr DiZane then commenced making the necessary arrangements, which resulted in severance on or about 1 November 1999.
The agreement for sale between Barry’s Australia and the respondents is attached to the letter of 30 April 2001 which by leave of Federal Magistrate McInnis constitutes the respondent’s defence. It reveals that Barry’s purported only to assign the rights under the franchise agreement, but the rights which it purported to assign were those of any oral or written agreement (clause 2.1). One of the agreements included was that between the applicant and Mad Barry’s.
The applicant claims that the respondents accepted responsibility for the breaches of contract and the representations made before the assignment. It points to the right of assignment permitted to the franchisor by clause 31 of the franchise agreement which states that:
“Barry’s shall have the right to assign this agreement and all its rights and privileges to any other person, firm or company…The assignee shall be economically capable of performing the obligations of Barry’s under this agreement and the assignee shall expressly assume an agreement to perform such obligations.”
At the commencement of the hearing and after Mr Freeman had concluded his opening, I asked him a number of questions from which I received the following responses:
i)There are no allegations that Elvaire breached its contract.
ii)There are no allegations that Elvaire made false or misleading statements pursuant to which the applicant entered into the franchise agreement.
iii)The only allegation concerning unconscionable activity on the part of Elvaire is in its declining to accept its responsibilities under the assignment. In this regard, I assume Elvaire also includes PEACS Pty Limited.
Mr Freeman advised me that he believed that Elvaire had taken over the responsibilities of Barry’s as franchisor, including its responsibility for the alleged breaches of contract and breaches of the Trade Practices Act that Barry’s had committed prior to Elvaire taking over.
The claim is brought by way of contract and under the Trade Practices Act. Insofar as the alleged breaches of contract are concerned, they would result in the creation of a chose in action owned by the applicant against the other contracting parties. These rights exist extra the contract and are not affected by any purported assignment. The language of the documents is clearly intended to make any obligations which are being transferred only those obligations in futuro; in other words, those obligations of the new franchsior that necessarily accompany the rights provided by the franchise agreement assigned. The right to receive royalties and the obligation to maintain standards or not grant additional franchises within the territory are examples, these rights being those which existed on and after 3 September 1999. Obligations arising out of a purported breach of contract by a third party prior to any rights being assumed cannot be imposed upon the assignees except by way of an obligation of indemnity or novation.
At paragraph 691 of the Third Edition of Meagher, Gummow and Lehane, the learned authors put succinctly the legal position on these matters;
“It is, of course, necessary to distinguish between on the one hand the benefit of a contract, and, on the other, a contractual obligation. The former can be assigned, the latter cannot. The only way an obligation may be transferred from one person to another is by a novation.”
As for the breach of the Trade Practices Act, this is a personal failing as incapable of assignment as a charge of murder. There is no suggestion that the respondents breached section 79 of the Trade Practices Act. True it is that the respondents could have indemnified Barry’s in respect of such breaches, but even if they had done so the proper party is still the original offender just as the property party in respect to the alleged breach of contract is the contractor. There is just no case to be made under the Trade Practices Act against these respondents on the papers before me.
These proceedings are misconceived. They show clearly the problems that arise when, in an effort to simply matters, courts depart from rules that have stood the test of time. If either of these parties had been represented the issues would have been more clearly articulated. If both had been represented (as being corporations they are required to be under the Federal Court Rules and the Rules of the Federal Magistrates Court) the respondents would not be here today, great saving in time and costs would have been made and in all probability justice would have been done as between the appropriate parties. I dismiss the application.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: