St Leger Investments Pty Ltd v True Blue James Pty Ltd

[2013] FCCA 601

FEDERAL CIRCUIT COURT OF AUSTRALIA

ST LEGER INVESTMENTS PTY LTD v TRUE BLUE JAMES PTY LTD & ORS [2013] FCCA 601

Catchwords:
CONSUMER LAW – Franchise dispute – allegation of failure to comply with regulatory disclosure obligations – allegations that misleading and deceptive representations made to induce franchisee to enter franchise agreement – claim that franchisee relied on misrepresentations – burden and standard of proof – degree of precision about oral representation – whether misleading or deceptive – whether breach of code causative of loss – cross-claim for breach of franchise agreement – applicant’s claim dismissed – judgment on the cross-claim.

COSTS – whether conduct of successful litigant warrants anything less than usual costs order following the event – submissions requested.

Legislation:
Fair Trading Act 1999 (Vic), ss.9, 159
Trade Practices Act 1974 (Cth), ss.51AD, 52, 75B, 82, 87
Franchising Code of Conduct 1998, Cl 6

Cases cited:
Butcher v Lachlan Elder Realty Pty Ltd [2004] 218 CLR 592
Campbell v Back Office Investments Pty Ltd [2009] 238 CLR 304
Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd [2005] FCAFC 131
Watson v Foxman [1995] 49 NSWLR 315

Applicant: ST LEGER INVESTMENTS PTY LTD

First Respondent:	TRUE BLUE JAMES PTY LTD
Second Respondent:	RUSHLYN PTY LTD
Third Respondent:	ROBERT JAMES

File Number: MLG 43 of 2011

Judgment of: Judge O’Dwyer

Hearing dates: 16, 17, 19 and 20 April 2012

Date of Last Submission: 23 July 2012

Delivered at: Melbourne

Delivered on: 24 June 2013

REPRESENTATION

Counsel for the Applicant: Mr Nixon

Solicitors for the Applicant: Foster Nicholson Jones Lawyers

Counsel for the Respondents: Mr Mylne

Solicitors for the Respondents: Mason Sier Turnbull

ORDERS THAT:

1. The applicant’s claims are dismissed.

2. On the cross-claim, the applicant pay True Blue James Pty Ltd the sum of $16,500.

3. On the question of costs:

   a)the respondents file and serve written submissions by 9 July 2013;

   b)the applicant file and serve written submissions by 23 July 2013; and

   c)the respondents file and serve submissions in reply (if any) by 30 July 2013.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 43 of 2011

ST LEGER INVESTMENTS PTY LTD

Applicant

And

TRUE BLUE JAMES PTY LTD

First Respondent

RUSHLYN PTY LTD

Second Respondent

ROBERT JAMES

Third Respondent

REASONS FOR JUDGMENT

Introduction

1. This is a dispute between a franchisee (the applicant) and a franchisor, where the applicant alleges the franchisor failed to comply with legislative provisions for disclosure and, further, made misleading and deceptive representations to induce the applicant, which it relied on, to enter into a franchise agreement. The applicant claims compensation as a consequence in the sum of $268,764.35, plus interest to the date of judgment. The quantum of this claim was not challenged by the respondents; however, liability to pay such was vigorously denied. The respondents have also counterclaimed, initially a sum in excess of $500,000, that amount was subsequently amended to $16,500 in final submissions.[1]

   [1]     See [102] – [104] of Mr James’ affidavit of 2 March 2012.

2. This litigation has hallmarks characteristic of disputes between franchisors and franchisees; namely, high levels of disputation about the factual situation surrounding the creation of the agreement in respect of representations made and allegations of inadequate disclosure by franchisors. The hearing was conducted over four days which gave me an opportunity to assess the principal witnesses in this case; namely Mr Tyler, a director of the applicant and Mr James, a director of the first and second respondents.  Mr James was also sued in his personal capacity.[2]

   [2] As a director of both corporate respondents, and as someone allegedly making representations, Mr James’ personal liability is said to be established pursuant to s.75B of the Trade Practices Act 1974 (as it was) and ss.9 and 159 of the Fair Trading Act 1999.

3. Hereafter, a statement of fact is to be taken as a finding of fact unless the context suggests otherwise.

Background

1. Mr Tyler is the director and controlling mind of the applicant.  

   
   

   Mr Tyler was in full-time employment with Racing Victoria as an accountant when in June 2010, he resigned to pursue his interest in the franchise business. He executed a “regional franchise agreement”

   
   

   (“the agreement”) with the first respondent (“TBJ”) on 28 June 2010, pursuant to which the franchise was to commence on 12 July 2010.

2. Under the agreement the applicant had a designated area (namely the Ballarat region) where he could sell sub-franchises to “service franchisees”. There were six types of service franchises - housecleaning, car cleaning, window/external house cleaning, lawn/garden maintenance, pet grooming and carpet cleaning.

   
   

   In this fashion he would source income from the sale of the service franchises and collect a percentage of the turnover from them. In turn, he would have to make payments as defined in the agreement to the principal franchisor. Crucially, the success of the applicant's business depended upon the sale of service franchises. To make the prospect of owning the franchise attractive, as Mr Tyler said, “viable”, it was necessary for the applicant to sell sufficient numbers of franchises to generate an income equal to or better, and of course Mr Tyler hoped it would be the latter, than what he would earn by way of a salary package with Racing Victoria.

3. In an attempt to give the franchise operation business efficacy, the franchisor required each prospective franchisee to submit a business plan, for the purpose it was said, to reassure the franchisor that the prospective franchisee had the capacity to make a success of a franchise if sold to it. In this regard, the applicant composed three business plans, two of which were submitted for consideration by

   
   

   Mr James.  It is to be noted that the suggested pro forma business plan offered by TBJ was rejected by Mr Tyler, as he believed it inadequate and he had a better one that he, as an accountant, would be happier using.

4. In each of the business plans, Mr Tyler set out the anticipated level of sales over a five-year period. The level of sales was fixed by Mr Tyler at one per month, being 60 over the period of 5 years. Significantly,

   
   

   Mr Tyler alleges he sought and was given an assurance that the level of sales projected by him was realistic, to which he received the response that the projected sales were "easily achievable" or “achievable”.

   
   

   The nature of this representation and others are discussed in more detail below, but suffice to say, Mr Tyler asserts that he relied on this representation before entering into the agreement.

5. Of significance in this case is the fact that there was an earlier proprietor of the Ballarat Regional Franchise; namely, Jocnsoc Pty Ltd, the principals of which were Mr and Mrs O'Connor. There was also a Victorian Statewide Master Franchisor which ceased to act in that capacity prior to the applicant entering into the agreement.

   
   

   That Statewide Master Franchisor was SJ Home Services Pty Ltd, the principal of which was Mr Simon Jane, who on 12 August 2008 informed the second respondent (“Rushlyn”) that it could not meet its debts and continue trading. Neither of these two entities, or contact details of their directors, were disclosed by TBJ in its disclosure documents, although Mr Tyler knew of their existence prior to entering into the agreement.  Mr Tyler also alleges that his attempts to obtain the contact details of these parties, prior to him, on behalf of the applicant executing the agreement, were ignored by the respondents, or their agent. He also alleges that representations were made to him as to why, for instance, Mr O'Connor failed in the franchise; namely,

   
   

   Mr O’Connor’s ill-health and a failure by him to follow "the system". The scope and nature of the allegations made in respect of representations so made are discussed in more detail below.

6. The applicant maintains, through Mr Tyler, that had Mr Tyler been given the contact details of the previous regional franchisee and also the Victorian Statewide Master Franchisee he would have made contact with them, as he did with the names of other franchisees he had been given, as part of his due diligence exercise before entry into the agreement. He maintains that communication subsequent to entering into the agreement with these people was so negative about the prospects of a successful regional franchise that he would not have entered into the agreement if he had known of their experience.

7. Needless to say, the franchise business proved a failure as a consequence of an inability to sell service franchises. The applicant ceased operating the Ballarat Regional Franchise business by late September 2010, after a very short period of only a few months.

   
   

   The event precipitating repudiation of the agreement by the applicant was the insight given, after entering into the agreement, by

   
   

   Mr O'Connor and Mr Jane when contact was made by Mr Tyler with them, in addition to the failure to sell even one sub-franchise.

8. In respect of the alleged misleading and deceptive representations pursuant to s.52 of the Trade Practices Act 1974 (Cth) (as it then applied) (“the TPA”)[3] the applicant seeks the compensation set out above under s.87 of the TPA. Also, under s.9 and s.159 of Fair Trading Act 1999 (Vic) (“the FTA”)[4] the applicant seeks compensation against Mr James for representations allegedly made.  In respect of the alleged failure to comply with legislative obligations of disclosure, the Applicant claims breaches under the Franchising Code of Conduct 1998 (“the Code”) which if proved, enliven s.51AD of the TPA, pursuant to which the claim for compensation is based.

   [3]     Although the extant legislation governing the issues raised in this litigation is now the Competition and Consumer Act 2010, as the events given rise to this proceeding occurred before 1 January 2011, the matter remains governed by the TPA. See Items 6 and 7 of Sch.7 to the Trade Practices Amendment (Australian Consumer Law) Act (No.2) 2010.

   [4]     This legislation comes within the Court’s accrued jurisdiction.

The issues

1. In written submissions filed by the respondents, the following pertinent issues, among others, were identified requiring my determination:

   (a)were the representations that were summarised in a list of representations provided by the applicant (Exhibit 6) made by Rushlyn  and/or TBJ?

   (b)in any event, were the representations misleading and/or deceptive?

   (c)reliance upon the representations - was the applicant induced to enter into the contract by the representations?

   (d)was there agreement as a consequence of any causation breach of the Code, resulting in loss or damage as alleged by the applicant?

   (e) is Mr James liable under the Fair Trading Act 1999?

   (f) has the applicant breached the Regional Masters Franchise agreement and, if so, what loss and damage has TBJ suffered as a result?   

2. The applicant, in written submissions, did not cavil with the setting out of the issues by the respondents, but went into great detail as to the nature of the conduct of the respondents, and the evidence relied upon to draw the causal connection between the representations, the failure to make proper disclosure pursuant to the Code and the damages and loss consequentially suffered.

The behaviour of the respondents

1. The behaviour of the respondents throughout this proceeding deserves serious criticism. Mr James, who is the director and controlling mind of TBJ and Rushlyn, has proved to be less than frank and compliant with his obligations as a litigant in this Court. In giving evidence he impressed as a man in whom I could have little confidence in his veracity. He was defensive, prevaricated, evasive and generally unable to make small concessions, even when such concessions had no real significance, but seemed to be resistant out of an anxiety not to say too much which might prove harmful to his case. As he was the controlling mind and director of the two corporate respondents, they of necessity, are also tarnished by his conduct.

2. The applicant in written submissions rightly highlights the conduct of which I am critical. There is no need to provide the full detail of such as it appears in the written submissions of the applicant, but suffice to say the following is noted:

   a)Up until the third day of the hearing the respondents maintained vigorously that there was no franchise agreement between the applicant or any of the respondents, and accordingly the disclosure provisions of the Code were not enlivened. It was only after the applicant's advisers became aware of proceedings involving one or more of the respondents in similar proceedings in this Court in the Adelaide Registry that, through a subpoena of the Court file, documents became available evidencing the nature of the franchise arrangements in that instance which were confirmatory of the agreement the subject of this proceeding; being a franchise agreement between the applicant and TBJ. Faced with this, the concession was made by the respondents that there was, as between the applicant and TBJ, a franchise agreement.  This is a concession that should have been made a long time ago.

   b)The respondents failed to disclose that a new Victorian State franchisor had been appointed, which fact is significant in regard to TBJ’s cross-claim which was on foot at the time of the hearing and which was supported in affidavit material by Mr James and which was a claim in excess of $500,000.

   c)I agree with the applicant's assertion that the respondents’ discovery was severely deficient. An example of this was the failure by Mr James to discover a document that was contrary to the respondents’ case. That document was the terms of settlement reached between a company conducted by Mr Runacres which had assigned its rights under a franchise agreement made with Rushlyn to TBJ on 24 August 2007. Those terms of settlement clearly puts pay to the defence run by the respondents that TBJ was not a franchisor with which the applicant could have a franchise agreement for the purposes of the Code.  This was clearly dishonest on the part of Mr James. Mr James clearly tried to exclude from scrutiny by the applicant, and the Court, documents that plainly established that there was no proper basis for the defence that the franchise agreement was not a franchise agreement for the purpose of the Code. The applicant was forced to subpoena documents from the accountants for the respondents to prove what otherwise should have been conceded from the outset.  There were issues explored, unnecessarily as it transpired, as to whether there was a franchise agreement with either of the corporate respondents and whether the disclosure requirements under the Code were enlivened.  There is no doubt, now, that TBJ was a franchisor which entered into a franchise agreement with the applicant and that the Code was enlivened.  There remained an issue, which is considered below, as to the level of disclosure required.  It is noted, however, that TBJ failed to give any disclosure document as required by the Code.[5]

   d)Further, Mr James and his agent, Ms Denise Hamilton failed to make discovery of, in his instance his diary and in her instance a laptop computer on which are said to be recorded various notes, of which some may be pertinent. Mr James conceded that he still had the relevant diary and indeed used it to assist in the preparation of his affidavits.

   [5]     A company known as TBJ Management Pty Ltd purported to give a disclosure document under the Code. 

3. The applicant has asked the Court to draw inferences from the nature of the conduct of the respondents that, obviously, are not favourable to their case. The applicant's Counsel urged me to find Mr Tyler a more reliable and credible witness than Mr James, or indeed, Ms Hamilton and find that the representations said to have been made to induce the applicant to enter into the franchise agreement, and upon which

   
   

   Mr Tyler relied, were indeed made and relied upon.

The evidence of Mr James and Mr Tyler

1. Whilst I am very unimpressed by Mr James and his evidence, there are, nonetheless, difficulties in the nature of the evidence given by

   
   

   Mr Tyler.

2. I was urged to find that Mr Tyler was, both by way of occupation and personality a fastidious and cautious man who was thorough and diligent, and he would not have entered into a franchise agreement until his innate conservatism was satisfied that, by doing so, he was not at risk of losing money. In that regard I was urged to find that had he have made contact with Mr O'Connor and Mr Jane, and had they spoken to him in the way they later did, prior to entering into the agreement, he would not have entered into it.  Because he was denied the contact details of these men, a requirement said to be imposed on TBJ under the Code, he was denied the opportunity of being fully informed and denied the opportunity of fully following through with his process of “due diligence”. 

3. Indeed, Mr Tyler did impress in the witness box as a very cautious man, perhaps pedantic, the nature of which was evidenced by his practice of reading thoroughly any document presented to him to comment on in the witness box.

4. He did not present as a dishonest man. However, whilst in most cases assessment of integrity and veracity are critical to fact-finding, it is not unknown for an honest man to recollect events in a way that is supportive of a favourable outcome; albeit that the process is subconscious. Some may describe such recollections as self-serving and it becomes a question of what weight should be given to them.

   
   

   The authorities are replete with warnings to adjudicators about the assessment of the accuracy of auditory memory where there is no supportive, or corroborative, evidence that instils confidence in a memory. In my view, in those circumstances, it is incumbent on me to look at the whole of the evidence.

5. Whilst Mr Tyler did impress as a conservative and meticulous man, who had made contact with those people involved in franchises of whom he was formally advised, it begs the question, why, if he was so minded and motivated, he did not insist on the contact details of both Mr O’Connor and Mr Jane when he knew of their existence and the roles they played in the scheme of things, before entering into the agreement.  I would have thought that prudent practice would have dictated that he not enter into the agreement until the contact details were provided and he had indeed made contact with them as part of his “due diligence” exercise.

6. His answer to that is, of course, to say he relied on the explanations given as to why they were unsuccessful, which he would contend were misleading (if not actually deceptive).  In regards to those alleged representations, I have considerable difficulty with the evidence of

   
   

   Mr Tyler.

7. The law requires that representations or conduct complained of (here misleading representations) must be “proved with a degree of precision to enable the court to be reasonably satisfied that they were in fact misleading in the circumstances[6].”

   6     Watson v Foxman (1995) 49 NSWLR 315 at 318

8. There was conflict in the evidence between the pleaded allegations of misrepresentation and both the affidavit evidence of Mr Tyler and his evidence in the witness box.  There was confusion as to who might have made these representations, Mr James or Ms Hamilton, to the extent I am not satisfied as to the nature of the alleged representations or indeed whether they were made in the context suggested by

   
   

   Mr Tyler.  Taking Mr Tyler’s suggested context, the representations as to his sales projections “as being achievable” amounted to a guarantee that they would be achieved.  Such an inference is not sustainable in circumstances, in my view, where the crucial element in success is the capacity to sell a product.  Mr James has established a successful franchise operation in Queensland and New South Wales, such success being dependent on an ability to sell.  Mr James provided a prescriptive “system” which he required his franchisees to follow to ensure sales.

1. Whilst it may be that TBJ failed to make the disclosure required by Clause 6 of the Code, I am not satisfied that the failure was causative of the loss suffered.

2. In respect of the significant alleged representation that Mr Tyler’s projected sales of one franchise per month over 5 years was “easily achievable”, I again have difficulty with the evidence of Mr Tyler.

   
   

   The changes in his evidence about this representation under cross-examination, where it was previously pleaded that only one such representation was made on 15 May 2010 by Mr James, was changed to it not having taken place on that day but on two other separate occasions, one of which predates the submission of the business plan from which Mr James could not have had any idea what Mr Tyler’s sales projection was.  Counsel for the respondents described Mr Tyler’s evidence on this alleged misrepresentation as “hopeless and shambolic”.  Although the applicant’s Counsel cavilled with the description, it is in my view not an unreasonable description.

3. In a similar fashion, under cross-examination, when Mr Tyler was referred to the pleadings on the alleged misrepresentations concerning the reasons for Mr O’Connor ceasing his Ballarat franchise (i.e. his health and failing to follow the system) and his affidavit evidence, it was apparent he failed to articulate his allegations as one would expect.  When pressed in respect of the alleged representations said to have been made in a car, he identified Ms Hamilton as the one who said it and then suggested Mr James nodded in agreement with what she said.

4. In respect of the alleged misrepresentation that on 8 April 2010,

   
   

   Mr James orally represented to Mr Tyler that he would easily be able to sell one franchise per month for the first 5 years, Mr Tyler in his affidavit material did not say he could easily sell a franchise per month for 5 years.  In the witness box, Mr Tyler conceded that Mr James did not say he could sell a franchise each and every month.  It also must be remembered that the originator of the notion of selling one franchise per month over 5 years was not Mr James, but Mr Tyler.  Mr Tyler gave evidence about how he went about calculating the sales projection.  Based on Mr James’ assertion made on 11 February 2010, that he could hope to sign up 1.5% to 3.5% of the population of Ballarat as customers through service franchisees, he went away and made his own enquiries about the population of Ballarat (35,000) which caused him to come up with the projected sales of 60 franchise over 5 years.  He, incidentally, does not allege Mr James assertion about percentages is misleading.  He does not allege that he relied on the assertion by Mr James in respect of the percentage of population to be signed up, as he specifically said he needed to make further enquiries before purchasing the Ballarat franchise.

5. In light of the inconsistent evidence of Mr Tyler in relation to all of the oral representations alleged, particularly in light of the importance of identifying the contravening conduct as outlined by the High Court in Campbell v Backoffice Investments Pty Ltd[7] and the importance of the need of proof of the words alleged with a requisite degree of precision referred to in Watson, I am of the view the applicant has failed to prove that any of its oral representations alleged were made.

   [7] (2009) 238 CLR 304.

The alleged representations

1. The respondents in their written submissions went to considerable lengths articulating each of the alleged representations and responded to each. There is no need for me to replicate the analysis of the representations made and the evidence said to be in support of them, or indeed, the lack of evidence to support them. Suffice to say, that I agree with the analysis of the respondents as to the nature of the representations. In particular, however, the applicant put great emphasis on its reliance on assurances given that its projected sales of 60 over five years was "achievable" or “easily achievable”, and that such representations were misleading or deceptive. I am not satisfied that such representations were deceptive or misleading. One cannot ignore the business environment in which the applicant was entering, namely sales. There was evidence, to the satisfaction of Mr Tyler, that sales had been achieved to a satisfactory level in Queensland and he had reassured himself on questioning other franchisees there about the viability of the franchise and accepted the assurance given by others that his projected sales were achievable. He has not proved, in my view, that the projected sales were unachievable over time with the right approach and sales skills. In my view, in the exercise of his due diligence, he would need to have evaluated his own skills at sales and the suitability of his own personality in that regard. His complaint was that he made no sales in a very short period of only a few months and thereafter repudiated the franchise. At the end of the day, I am not satisfied that some of the alleged representations were made because of the confusion as to places and times they were said to have been made. In any event, even if some of them had been made as alleged in respect of the achievability of sales, such representations, in my view, do not amount to a misleading or deceptive representations.

2. On the question of what are deceptive or misleading representations, in Campbell, in the joint judgment of Gummow, Hayne, Hayden and Kiefel JJ quoted with approval the observations of McHugh J in Butcher v Lachlan Elder Realty Pty Ltd:[8]

   The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s.52 has occurred, the task of the Court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of relevant surrounding facts and circumstances. It is an objective question that the Court must determine for itself. It invites error to look at isolated parts of the corporation’s conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s.52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The Court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the documents.

   [8] [2004] 218 CLR 592 at 625 [109].

3. In the same way that one must analyse, in context, any representations made in a document, context also applies in the same way to alleged oral representations. Pertinent to these considerations is also the observations of the Full Federal Court in Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd:[9]

   [9] [2005] FCAFC 131 at 226-227 [75]-[76].

   Whether or not a corporation has contravened the norm of corporate conduct established by s.52 of the TPA … is not necessarily answered by asking whether someone was in fact misled, although evidence to that effect might be highly relevant.

   …

   The issue of whether the conduct of [the representor] was in the circumstances misleading or deceptive was required to be determined by reference to what a reasonable person in the position of [the representee] would have made of those documents.

4. The context in which the alleged representations are to be judged is one, as already stated, of making sales of a product (sub-franchisees) and in that environment, as in all environments involving sales, an individual gifted with sales skills can achieve much, where another who lacks those skills may achieve little. The representations made to Mr Tyler by other Queensland-based franchisees about the achievability of sales must be considered in the context of those particular franchisees capacity for making sales. The applicant has not proved that in that context of those representations made by them that they were deceptive or misleading.

5. In light of the dramatically inconsistent evidence of Mr Tyler in relation to all of the oral representations alleged, being mindful of the importance of identifying the contravening conduct as outlined by the High Court in Campbell, together with the importance of the proof of the words alleged with the requisite degree of precision referred to in Watson[10], I am of the view the applicant has failed to prove that any of the oral representations as alleged were made.

   [10] Watson v Foxman (1995) 49 NSWLR 315

Other witnesses called by the applicant

1. The applicant called Mrs Tyler to confirm representations made about achievability of sales and there is no reason for me to doubt her evidence. However, as indicated above, I am not satisfied that such representations amounted to deceptive or misleading representations. The applicant also called Mr O'Connor to give evidence about the difficulties he had when involved in Jocnsoc Pty Ltd, the former Ballarat Regional Franchisee. He gave evidence of his inability to make a viable go of the business and he gave evidence to refute the suggestion that he had personal health difficulties; such difficulties being the suggested alcohol abuse. By inference he refuted any difficulties with alcohol by confirming his employment now as a commercial pilot and the stringent medical test he needs to undergo in order to maintain his licence to fly. The difficulty with this evidence, however, is that I am not satisfied that representations were made to the effect as alleged by the applicant; namely, that the explanation for

   
   

   Mr O'Connor's failure in the business was alcohol-related. The other explanation given for Mr O'Connor's failure was the alleged representation he failed to follow “the system” and on Mr O'Connor's evidence that would appear to have been the case.

2. Again the evidence of Mr Jane of SJ Home Services Pty Ltd, in my view, was not confirmatory of anything but the difficulties he had in making a success of the franchise. That evidence, in itself, is not confirmatory or of any misleading or deceptive representation.

Reliance/Causation - the determinative finding

1. Should I be mistaken in finding that the applicant failed to prove the alleged representations were made, or if made did not amount to deceptive or misleading representations, I also, for the following reasons, find the applicant in any event failed to prove it relied on the representations.

2. In essence, the Applicant relies on two bases for its claim for compensation:

   1)misleading and/or deceptive representations were made that induced the applicant to enter into the franchise agreement; and

   2)the respondents were under an obligation to comply with the disclosure requirements under the Code; principally, the requirement to give details of former or other franchisees.

3. To be successful under either of these two bases for compensation, the applicant must prove that it was reliant in the first instance on the representations made and/or in the second instance the Court must also be satisfied that the breach of the disclosure obligations was causative of the loss suffered.

4. For the sake of argument, excepting a finding that the representations as alleged were made and were misleading or deceptive, or alternatively there was proved to be an obligation on one or more of the respondents to make the disclosure as required by the Code which they failed to do, there still is the crucial need to find that there was reliance or causation.

5. In this particular case, I find no need to assess and analyse the various arguments put to me in submissions about whether there was an obligation placed upon TBJ (as the eventually admitted franchisor) to make the disclosures allegedly required to be made, as I am of the view, on all the evidence I have heard, that the applicant fails to establish the reliance or causal aspects necessary for a successful action.

6. I am satisfied on the whole, the evidence, notwithstanding the fact that TBJ failed to comply with Clause 6 of the Code and provide the contact details of Jocnsoc Pty Ltd and SJ Home Services Pty Ltd,

   
   

   Mr Tyler had full knowledge of their existence, he had pursued to some degree a request that he be provided with those contact details, but chose in the end to go ahead and enter into the agreement, notwithstanding his knowledge that there had been the unsuccessful involvement of other franchisees in his area in the past. Mr Tyler left me with the impression that he was confident in his own capacity, as an accountant, and as someone who employed his own better practices (i.e. business plan) that he did not need to make any further enquiries and assumed, as I found he must have done in this case, responsibility of taking the action when he entered into the franchise agreement.  I am not satisfied that even if he had made contact with

   
   

   Mr O’Connor and Mr Jane before entering into the agreement, he would not have committed himself to the franchise business.

The Cross-claim

1. It follows from the above findings that there was not a total failure of consideration and that the agreement was repudiated by the applicant.  The amended cross-claim by TBJ is therefore, the amount due under the agreement, which is clearly spelt out in the agreement, which provided for minimum payments to be made, until TBJ ceased conducting business as the State Master Franchisee for Victoria in February 2012 when a new State Franchisee was appointed.  No issue was taken as to the quantum of this amended claim by the applicant in submissions and I am satisfied it is an amount properly due to TBJ.  Accordingly, there will be an order to that effect.

Conclusion

1. For the above reasons, the applicant has failed in proving, in effect, the alleged representations were made; but more significantly that, even if they had been made, they were misleading or deceptive.

2. In respect of the breach of the Code, I am satisfied that TBJ did breach the Code, but again the breach was not causative of the loss suffered by the applicant.

3. In respect of the claim against Mr James it follows that, from my findings on the cross-claim, I am satisfied that the applicant wrongly repudiated the agreement and TBJ is entitled to the loss it suffered as set out above.

4. Accordingly, the applicants claims should be dismissed and judgment entered in favour of TBJ about whether the representations were made, whether they were relied on and whether, if made, they were causative of the claimed loss and damages, the claim against Mr James must fail.

Costs

1. Whilst costs normally follow the event, in this case, on the face of it, but subject to submissions, there appears to have been conduct by the respondents that may justify a variance to the usual practice.  Accordingly, I intend to invite the parties to provide written submissions on the issue and thereafter determine the question of costs on the papers.

I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Judge O’Dwyer

Date:  24 June 2013