Sureslim Australia v Mansell
[2002] NSWSC 945
•11 October 2002
CITATION: Sureslim Australia v Mansell [2002] NSWSC 945 CURRENT JURISDICTION: Equity FILE NUMBER(S): SC 2280 of 2002 HEARING DATE(S): 22-26 July 2002 JUDGMENT DATE: 11 October 2002 PARTIES :
Sureslim Australia Pty Limited (Plaintiff/First Cross Defendant)
Andew Robert Mansell (First Defendant/First Cross Claimant)
Joanne Helen Mansell (Second Defendant/Second Cross Claimant)
Ian Finlayson (Third Defendant/Third Cross Claimant)
The Weight Professionals Pty Limited (Fourth Defendant)
Calvin Tulloch (Second Cross Defendant)
Petro Tulloch (Third Cross Defendant)
JUDGMENT OF: Windeyer J at 1
COUNSEL : Mr R Kaye (Plaintiff/Cross Defendants)
Mr G McVay (Defendants/Cross Claimants)SOLICITORS: Lazarus Smith Lawyers (Plaintiff/Cross Defendants)
Spencer Whitby (Defendants/Cross Claimants)CATCHWORDS: CONTRACT - breach - whether non-payment of franchise fee amounts to breach of the franchise agreement - RESTRAINT OF TRADE - whether a restraint of trade clause is too wide and therefore against public policy - whether the franchisees should be restrained from setting up and operating a business in competition to the business previously conducted under the franchise agreement - TRADE PRACTICES ACT - misleading deceptive and unconscionable conduct - whether alleged representations made about the franchise business were misleading and deceptive under s52 of the Trade Practices Act - whether the conduct of the franchisor was unconscionable under s51AC LEGISLATION CITED: Fair Trading Act 1987
Restraints of Trade Act 1976 s4(1)
Trade Practices Act 1974 s51AC, s52CASES CITED: ICT Pty Ltd & Buquebus International Ltd v Sea Containers Ltd (1995) 39 NSWLR 640
Orton & Ors v Melman [1981] 1 NSWLR 583DECISION: See paragraphs 41 to 44
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
WINDEYER J
FRIDAY 13 OCTOBER 2002
2280/02 SURESLIM AUSTRALIA PTY LIMITED V ANDREW ROBERT MANSELL & ORS
JUDGMENT
Outline
1 The plaintiff as franchisor sues two franchisees for breach of franchise agreements, claiming damages, restraint orders and other relief. The franchisee defendants deny the entitlement to relief and cross claim under s51AC and s52 of the Trade Practices Act 1974 and the equivalent sections of the Fair Trading Act 1987 for misleading and deceptive conduct in respect of certain representations claimed to have been made by the franchisor and relied upon.
2 On 13 May 2002 an order was made by Bryson J as follows:
- The hearing on 22 July 2002 be a hearing on liability and orders to set aside any of the franchise deeds under s87 of the Trade Practices Act/Fair Trading Act, but damages be heard separately.
3 There is a claim for an account of profits that may be in lieu of or in addition to any claim for damages, but would in any event have to be heard separately. The claim for a restraint order was argued and is dealt with in this judgment as is entitlement to damages under the restraint covenant but not the amount.
Facts
4 SureSlim Australia Pty Limited (SureSlim) is a company incorporated on 2 March 2000. The directors and shareholders are Calvin Nesbitt Tulloch and his wife Petro Hettie Tulloch. Before coming to Australia Mr and Mrs Tulloch had conducted a SureSlim business in South Africa. That business was the conduct of and franchising of SureSlim Wellness clinics being businesses providing weight loss programmes for individual customers, claimed to be personalised diet programmes for particular individuals having regard to age, health, history and the result of blood tests.
5 SureSlim commenced operations in Australia in May 2000. The plan was to open franchised centres around Australia. The start was reasonably slow and at least in the Sydney region by July 2001, there were clinics operating only at Neutral Bay and Bondi Junction, but there were plans to open others and one was expected to open at Parramatta before the end of the year. The first and second defendants, Andrew Robert Mansell and Joanne Helen Mansell (the Mansells) entered into a franchise agreement for a clinic located in the central business district of Sydney on 4 September 2001. The premises were not premises controlled by SureSlim, but were premises Shop G40 Imperial Arcade, Castlereagh Street, Sydney which the Mansells leased through a company for the purpose of conducting the franchised business. I will refer to these premises as the CBD clinic.
6 The third defendant, Ian Finlayson (Finlayson) entered into separate franchise agreements for Neutral Bay and Bondi Junction clinics on 31 October 2001. These two clinics were clinics which had, up to that time, been operated by SureSlim itself, rather than through a franchisee. The agreements had annexed as Schedule 3 a document headed “Transfer Procedures” which provide for an assignment of lease but in fact there was no assignment. There were some problems with payment of the purchase price and Finlayson only commenced trading at Neutral Bay on 4 February and Bondi Junction on 11 February 2002.
7 The fourth defendant, The Weight Professionals Pty Limited (Weight Professionals) was incorporated on 2 April 2002, although a business under the name of The Weight Professionals had been registered on 21 March 2002, the registration particulars showing Mr Mansell and Mr Finlayson as carrying on the business at the CBD address. The directors of Weight Professionals at commencement were Mr Mansell and Mr Finlayson. On 22 April 2002, Ellen Byrne, who is the wife of Finlayson, was appointed a director and Mr Mansell and Finlayson resigned as directors. However, it seems that on 5 June 2002, Mr Finlayson, a Mr Lloyd Davis and Mrs Mansell were appointed additional directors of the company with Mrs Byrne and Mr Mansell was appointed secretary. Nothing particularly turns on this. The Weight Professionals is controlled by the Mansells and Finlayson.
8 From 2 April 2002, the SureSlim franchise operations conducted at the CBD clinic, Neutral Bay and Bondi Junction were effectively closed down. The Weight Professionals commenced to operate in the CBD premises, which had been leased by the Mansells and at other premises at Bondi Junction, but not those in which the SureSlim clinic had previously been conducted. The Neutral Bay operation was abandoned. The Weight Professionals now operates clinics at the CBD clinic, Bondi Junction, Parramatta, Liverpool, Bankstown and Hurstville.
9 The agreement the Mansells signed was described as a standard franchise agreement. That agreement had certain confidentiality clauses, and a restraint of trade clause. For some reason a further restraint and confidentiality agreement was signed on 2 October 2001. This, however, is of little consequence.
10 The Mansell franchise agreement is a document of about fifty-five pages. It provided for an initial franchise fee of $50,000, defined the territory as being Australia, provided for a franchise period of ten years and a franchise fee of 16% on net sales and a marketing fee of 8.6% of net sales. The following provisions appear in the agreement and are relevant to the issues to be determined in this hearing:
- 10. FEES
- 10.1. The Franchisee aggress to pay to the Franchisor an initial franchise fee in the amount set out in clause 1.4 which fee shall be payable to the Franchisor upon the execution of this Agreement. The initial franchise fee shall be fully earned by the Franchisor when paid and is non-refundable for any reason whatsoever, except where the Franchisee terminates this Agreement in accordance with part 3 paragraph 3 of the Franchising Code of Conduct and as contemplated in clause 4 above.
- …
- 11. TRADE SECRETS
11.1 The Franchisor possesses certain trade secrets, know-how and confidential information in regard to the construction, development, operation and franchising of wellness clinics, including its methods, training techniques, formulas, formats, specifications, procedures and information systems utilized in the operation and franchising of wellness clinics. Furthermore, it has proprietary knowledge of the sales and profit performance of the wellness clinics, its test programs, service methods and advertising and promotional programs, as well as in regard to its sources of products and equipment, and its methods in regard to the selection and training of wellness clinic managers. All or any of the aforegoing is hereinafter referred to as “the Trade Secrets”. The Franchisor will disclose the Trade Secrets to the Franchisee in furnishing him with plans for the wellness clinic, in furnishing him with the Operating Manuals, by providing guidance and assistance to the Franchisee hereunder in connection with Site selection and in the performance of the Franchisor’s other obligations and the exercise of its other rights under this Agreement.
- 11.2 The Franchisee and, where the Franchisee is a corporation, the Directors and shareholders of the Franchisee (“the Principals”) (hereinafter collectively referred to as the “the Restrainees” ), hereby each acknowledge and agree that they will not acquire an interest in the Trade Secrets other than the right to utilize them in the development and operation of the wellness clinic during the term of this Agreement, that the use or duplication of the Trade Secrets are the Franchisor’s property and are disclosed to the Restrainees solely on the condition that the Restrainees each hereby agrees and undertakes that during the term of this Agreement and at all times thereafter each of them save to the extent that any Trade Secret has become generally known, is in the public domain or is easily accessible;
11.2.1 will not use the Trade Secrets in any other business or capacity;
11.2.2 will maintain the absolute confidentiality of the Trade Secrets;
11.2.4 will operate and implement all reasonable procedures prescribed from time to time by the Franchisor to prevent the unauthorized use and disclosure of the Trade Secrets, including without limitation restrictions on disclosure thereof to employees of the Franchisee and the use of non-disclosure and non-competition clauses as prescribed by the Franchisor in employment agreements with employees who have access to the Trade Secrets. Copies of such agreement shall be promptly delivered to the Franchisor if the Franchisor so requires.11.2.3 will not take unauthorized copies of any portions of the Trade Secrets disclosed in permanent form, including without limitation, any plans, the Operating Manuals, circulars supplements and additions thereto; and
11.3.1 carry on or otherwise be engaged or concerned or interested in or employed by;
11.3.2 solicit business for;
11.3.3 be a director, shareholder, member or partner in;
11.3.4 act as a consultant, trustee, manager, employee, agent, representative, partner advisor, officer or in any other capacity to;
11.3.5 render any service (gratuitously or otherwise) to;
11.3.6 lend or advance, or bind himself/themselves as surety for, any sum of money or assist financially;
- any person, company, partnership, trust, business, association or other legal entity which (wholly or partially), within the Territory and internationally, conducts, licenses or franchises any Competitive Business. For the purposes hereof:
- 11.3.7 “Competitive Business” shall mean the owning, conducting, licensing or franchising of any wellness clinic or slimming industry business which is the same as, similar to or in competition with the wellness clinic from time to time and/or which uses methods similar to, is likely to cause confusion with or create the impression of a wellness clinic which is franchised, affiliated to or associated with the Franchisor;
- 11.3.8 “Restraint Area” shall mean each of the following areas separately;
11.3.8.1 the Territory;
11.3.8.3 any other country.11.3.8.2 any country in which the Franchisor conducts the business of operating or franchising wellness clinics equivalent to the Sureslim wellness clinics operated by the Franchisee:
12. WELLNESS CLINIC IMAGE AND OPERATING STANDARDS
- 12.1 The Franchisee agrees:
- 12.1.1 that neither the wellness clinic nor the Site will be used for any purpose other than the operation of the wellness clinic in compliance with this Agreement and offering the client specific diets as prepared by the Franchisor;
- 12.1.2 that no treatment will be provided to any customer without the customer’s blood being scrutinised by a pathologist or medical practitioner approved by the Franchisor, such approval not to be unreasonably withheld;
13. MARKETING
- …
- 13.7 Notwithstanding anything to the contrary contained herein, the Franchisee shall not place any advertising or conduct or engage in any promotional, advertising or marketing campaign of whatsoever nature without the prior approval in writing of the Franchisor, which approval shall not be unreasonably withheld or delayed.
20. RIGHTS AND OBLIGATIONS OF FRANCHISOR AND FRANCHISEE UPON TERMINATION OR EXPIRATION OF THE FRANCHISE
- …
- 20.7 The Restrainees hereby each undertake and warrant in favour of the Franchisor that upon the termination or expiration of this Agreement (unless the Franchisor and the Franchisee agree to a renewal of this Agreement) (“the Termination Date”), they shall not for a period of 12 (Twelve) months, with effect from the Termination Date, directly or indirectly:
- 20.7.1 carry on or otherwise be engaged or concerned or interested in or employed by;
- 20.7.2 solicit business for;
20.7.3 be a director, shareholder, member or partner in;
- 20.7.4 act as a consultant, trustee, manager, employee, agent, representative, partner, advisor, officer or in any other capacity to;
20.7.4 render any service (gratuitously or otherwise) to;
- any person, company, body corporate, partnership, trust, business, body corporate, association or other legal entity which (wholly or partially), within the territory conducts, owns, licenses or franchises any Competitive Business (as defined in clause 11.3 above)
- …
In the event of the Franchisee, despite its best endeavours, fails to obtain the finance with regard to the Initial Franchise Fee as referred to in clause 1.4, its is hereby agreed that the Initial Franchise Fee will be paid in the following manner:
SCHEDULE 3
1. The Franchisee will provide the Franchisor with a list of its expected operating expenses.
2. The proceeds of all sales of the Franchise, except for the operating expenses which the Franchisor has to agree to as mentioned in clause 1 above, is to be paid directly into the account of the Franchisor upon receiving payment from the customer. The abovementioned operating expenses must be retained by the Franchisee at the beginning of each month and thereafter the payments into the account of the Franchisor should take place.
3. The Franchisee will provide the Franchisor with a list of such payments on a daily basis in order to facilitate the easy reconciliation of the account.
3. Interest will be charged as specific in Clause 10.4 of the Franchise Agreement.
4. should the Initial Franchise Fee not be paid in full by the end of three months after the commencement date, the Franchisor might exercise his right to repossess the franchise, unless otherwise agreed to in writing.
EXECUTED by SURELSIM AUSTRALIA PTY LIMITED by authority of the Directors in the presence of:SIGNED by ANDREW ROBERT MANSELL and JOANNE HELEN MANSELL………………………………. …………………………….
Secretary Director
11 Clause 19 gives the franchisor the right to cancel the agreement by giving notice in certain circumstances. No such notice has been given although there is no doubt that circumstances have arisen which would entitle the franchisor to give the notice. I have not set out the clauses relating to trademarks because claims based on ownership of trademarks are not pressed in this action.
12 As the Mansell defendants have not paid the initial franchise fee they are in breach of the terms of the agreement to make the payment. The evidence is also quite clear that they are in breach of Clause 13.7 and if the agreement has been terminated they are in breach of Clause 20.7.
13 There is a claim for passing off made in the pleadings against the Mansell defendants. This was not really pressed by counsel for the plaintiff and he was quite right not to do so. The evidence is that after the Mansell defendants decided to breach the franchise agreement and operate under the new name of the Weight Professionals that is exactly what they did and they told all their customers that they were no longer a SureSlim clinic. It is not necessary to deal with that part of the claim any longer.
14 There is also a claim for misleading and deceptive conduct but for the same reasons that claim must fail. Whatever else is clear about this case it is that the defendants made it quite clear to customers and in fact to persons who had previously been SureSlim customers that they were no longer associated with SureSlim. I should add that there was no evidence going to reputation. There are additional claims relating to breach of a confidentiality agreement and unauthorised use of confidential information to which I will return when dealing with the claims against the third defendant.
15 The Finlayson agreements included those clauses I have set out for the Mansell franchise contracts. As I have said he went into the occupation of the Neutral Bay clinic on 4 February 2002 and the Bondi Junction on 11 February 2002 and he ceased operations of both those clinics and vacated the premises around 28 March 2002. After that the Weight Professionals opened a clinic in different premises in Bondi Junction. Claims under the same heads are made against Finlayson as are made against the Mansells and what I have said in respect of those claims applies equally to the claims against Finlayson.
16 The initial purchase price payable by Finlayson for the Bondi Junction franchise was $100,000 and that was paid in full. The price for the Neutral Bay clinic was the same but part only was paid and $43,000 remains outstanding. However, the fact is that, unless the matters raised by the individual defendants by way of cross-claim succeed, then the Mansell defendants would be bound to pay the sum of $50,000 and Finlayson would be bound to pay the sum of $43,000 to the plaintiff company. While damages are for a separate hearing I see no reason why interim judgments could not be entered for those amounts.
17 The claim against the fourth defendant appears to be a claim for knowing receipt of fees which have been earned as a result of trade secrets or confidential information of the plaintiff. As I understood it that claim was not seriously pressed and can be disregarded at the present time. I do not understand that there were any additional costs involved in the defence so far as the Weight Professionals was concerned.
18 In addition to the franchise agreement, both Mr Mansell and Finlayson signed a document called a restraint of trade and confidentiality agreement. There does not appear to have been any additional consideration given for this and it is therefore difficult to see how it could be binding or relied upon by the plaintiff company. Its terms are as follows:
- RESTRAINT OF TRADE AND CONFIDENTIALITY AGREEMENT
- 1, Andrew Mansell (or Ian Finlayson) the undersigned, acknowledge that I had no previous knowledge whatsoever of the exact kind of business of SureSlim Australia Pty Ltd before being trained by SureSlim.
- I, the undersigned, undertake not to enter into any agreement or take up any position presently and in the future, with any company or business promoting slimming procedures or programs or any other concerned that promotes a similar business for the period of three years from the date I cease to be in the employ, in whatever capacity, of SureSlim Australia Pty Ltd, or any of its Franchises.
- I also agree not to divulge or discuss any information of whatever nature concerning any SureSlim business, with any outsider for whatever reason, whether I be employed as a consultant or in any other capacity, in order to assist anyone who intends starting such a business. This will apply for a period of three years from the date I stop working for SureSlim Australia Pty Ltd, or any of its franchises.
- I agree to maintain strictest confidentiality at all times.
As neither Mr Mansell nor Mr Finlayson was an employee of SureSlim, nor an employee of any franchisee it does not seem that this document has any bearing on this action, nor that it places any obligations on the signatory to it.
19 It is I think desirable to deal with each of the plaintiff’s claims in turn and then to deal with the cross claim. That is because this has been a somewhat difficult case and it is important to keep the issues separate. The findings which I am about to make may of course be varied as a result of the decision on the cross claim.
Restraint agreement
20 If the agreement has been terminated then Clause 11.3 cannot apply because it only applies during the term of the agreement.
21 In the event of breach of the franchisee it is the franchisor who has the right of election to terminate. Bearing in mind the various forms of relief claimed it is, I think, clear that the franchisor plaintiff has not terminated. Apart from anything else it has not given notice of termination as provided for in the agreement. The restraint area is either Australia or any other country. There is nothing to show that Clause 11.3.8.2 applies. On any basis the restraint area, so far as it applies to any other country, is too wide, is unreasonable and contrary to public policy. The defendant pleads this defence. There is no reply invoking s4(1) of the Restraints of Trade Act 1976 but that is not necessary: ICT Pty Ltd& Buquebus International Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 675.
22 I would have thought it obvious that the restraint in Clause 11.3.8.2 and 11.3.8.3 was too wide. I would have thought a restraint applying to the whole of Australia too wide. But at the outset it is necessary to look at the actual breach. Weight loss clinics are being operated in the CBD at Bondi Junction, Bankstown, Liverpool, Parramatta and Hurstville. There are SureSlim clinics at Chatswood, the Central Coast, Charlestown, Parramatta, Burwood, Mona Vale, Miranda, Hurstville, Wollongong and Castle Hill as well as Melbourne and Adelaide. Leaving aside the terms of restraint I consider it clear the restraint, insofar as it applies to breach through the operation of the clinics I have mentioned is reasonable. I do not consider a period of ten years reasonable, but I consider a period of two years reasonable as from 2 April 2002. This is the approach accepted in Orton & Ors v Melman [1981] 1 NSWLR 583 and followed since. As is explained in that case when injunction is sought which would have a wider operation than over the present breaches further consideration is required. Evidence may have established entitlement to a wider restraint area, but without evidence I consider the court should err on the side of caution and that an area limited to thirty kilometres from a SureSlim clinic operating on 2 April 2002 in New South Wales would be valid and reasonable. That does not seem to be a redraft as opposed to a reading down.
Clause 20.7
23 This clause presents much the same problems. The plaintiff has not claimed termination. The clause on its proper construction in the context of the whole agreement appears to apply to termination by the franchisor. The franchisees claim to have terminated for repudiation by the franchisor. A proper construction of the clause would not make it applicable in such circumstances. I should add that although breach of Clause 20.7 is pleaded no relief is claimed in paragraph 51 relying on breach of Clause 20.7.
Clause 12
24 At the hearing I was inclined to accept the defendants’ contentions that this clause is not applicable. That was because its purpose as indicated by the heading appears to be to control what happens in a Sureslim clinic so as to prevent other types of business being conducted from the same place. I have had some later hesitation about this but still consider the clause could not be interpreted to tie up the CBD site forever. This is because in the case of the Mansells they through a company took the lease and the company could not be bound to that site for the term of the franchise agreement.
Breach of Confidentiality
25 It is necessary to set out some more details. The plaintiff claims that the defendants used confidential information in the information package and operations manual made available to them and other general SureSlim material in setting up their new businesses.
26 There can be no doubt that the defendants made use of that information. The CBD clinic now conducted by the fourth defendant, on the evidence available, is conducted upon precisely the same lines as the SureSlim clinic commenced there. Its layout is much the same, its procedures appear to be the same, its stationery is, or started out, as the same, although it may have changed, the suggested recipes, at least in some instances, are exactly the same, the suggested diets are very similar. Until ordered to return them, the defendants retained the operating manuals of the plaintiff. Neither the Mansells nor Mr Finlayson had any previous experience in operating a slimming business. In essence they took over the concept of the plaintiff and made it their own.
27 This previous finding however does not mean that the material made available or the method of operation incorporating use of the material, and the use of blood tests, was confidential. Mr and Mrs Tulloch had themselves incorporated material from other dietary writers direct into their own materials; the recipes would not be confidential and it was not established that the recommended diets were in any way special or new. I consider the claim, based on use of confidential information fails against all defendants.
Findings on plaintiff’s claim (subject to cross-claim)
28 As I have said the trademark claim articulated in the statement of claim was not pressed. The passing off claim and the misleading conduct claims fail. The claim for breach of confidentiality fails. The claims for breach of contract and for payment of the outstanding balance of purchase moneys for the franchises succeed, and the claim based on the restraint covenant succeeds in part. There is a claim against Finlayson for the cost and expenses associated with the vacation of the leased premises. The fact of leaving those premises is pleaded, although breach of Clauses 5 and 6.3 of the Finlayson franchise agreements was not. This was, I consider, clearly part of the plaintiff’s claim against Finlayson and the plaintiff is entitled to damages for breach, but in fairness to the third defendant I will hear any further submissions on this.
Cross claim
29 The Mansells and Finlaysons have brought separate cross claims against SureSlim but in essence they are similar claims and rely on similar facts. As pleaded they seemed to be framed to have as wide a spread as possible in the hope that one or more of the claimed representations said to have been relied upon as inducement to enter into the franchise agreements would be sheeted home and found established.
30 The list of representations claimed by the Mansells to have been relied upon by the cross claimants in support of their claim for misleading and deceptive conduct can be separated into the following:
1. Oral representations at the initial meeting.
2. Representations in documents provided prior to signing the franchise agreement.
It is not quite clear what claim is made in respect of the continuing representations which could relate to any relief claimed.3. Continuing representations.
31 In addition to these claims there are additional claims of (1) unconscionable conduct within s51AC of the Trade Practices Act which seems to be articulated in two ways; first a claim for breach of the Franchising Code of Conduct which in the end was relied upon by counsel for the cross-claimants only in support of a defence of lack of clean hands which was never pleaded; and second a claim based on s51AC(3); (2) a claim for repudiation of contract and acceptance by the cross-claimants. The cross-claim of Mr Finlayson is to the same effect.
Oral representations
32 The pleaded representations claimed so far as the Mansells are concerned as made to them at the initial meeting are that the SureSlim concept was a successful business; that Australian SureSlim clinics were operating successfully and profitably and would improve in performance with Mr Tulloch back in Australia; that television advertising was being arranged; there had been radio advertising and it was beneficial to the profitability of the existing franchise at Parramatta as well as the clinics at Neutral Bay and Bondi Junction; that SureSlim employed a medical practitioner and a dietician who were responsible for preparing the customers’ diets; that SureSlim would implement a national advertising television programme in 2001 which would increase customer sales by four hundred percent; that SureSlim’s doctor would interpret the blood tests prior to diet programmes being provided and that SureSlim clinics would generate sales of one hundred to two hundred programmes per month per clinic; and that the only costs which the Mansells would incur after the payment of the franchising fee would be their royalty payments and that group advertising would be funded out of the royalty payments.
33 The documents were said to make representations to much the same effect.
34 It is necessary to say when considering these matters that I do not consider any of the principal witnesses to be entirely satisfactory. On the other hand I consider the evidence of Mr and Mrs Tulloch to be generally more reliable than that of Mr and Mrs Mansell. In general I accept the oral evidence of Mr Finlayson, but not his affidavit evidence as to reliance. There was evidence by the Mansells of statements by Mrs Tulloch and Mr Tulloch about their clinics going “gang busters” an expression which I am satisfied they did not use. There was also evidence, based upon statements made, as to the success and profitability of the Parramatta clinic, which had not even opened at the time when the representations were said at the commencement to have been made. I accept that the Mansells were told as Finlayson was told that the SureSlim concept was a successful business; that television advertising was proposed; that radio advertising was being carried out; that there was a medical practitioner and a pathologist employed and a dietician available for consultation, but I find that it was never stated that these people were responsible for preparing customers’ diets and find that the defendants were well aware that these prepared by the consultants employed by SureSlim at its office at Mona Vale. I find that there was never any representation that the SureSlim clinics would generate sales of one hundred to two hundred programmes per month, nor some lesser number such as sixty, although it was said that this was possible and should be achieved. I find that there was no representation made that the only fee after the franchising fee would be the royalty payments. In fact Mr and Mrs Mansell accepted that this was untrue.
35 In the course of the hearing it became clear that the only statement which was really relevant and claimed to have been relied upon was the statement as to the number of sales which could be made per month. Although this is not a pleaded claim until amendment by consent after the hearing concluded, the representation which was constantly stated by Mr and Mrs Mansell was that sales of sixty programmes per month could be achieved at an early stage and that this would increase and that they relied upon this in making their calculations and deciding to go forward. The evidence in support of this, apart from the statement that the claim was made by Mr and Mrs Tulloch, was some documentary material which purported to show the financial returns of SureSlim clinics achieving a certain number of sales at a certain price over a particular period, together with statements produced from the clinic at Neutral Bay said to go to show the profitability of that clinic over a limited period of time. In my view it is clear that the statements made were in no way representations of future sales which would be achieved and it is perfectly clear from the evidence that they were not regarded as such. For instance, documents produced by Mr Mansell to be used in applications to financiers for finance for himself and perhaps for other franchisees were based on early sale of programmes of far fewer than sixty per month. The efforts of Mr Mansell to explain this were quite unconvincing. It is true that there were statements about a proposed advertising campaign on television which was certainly late, but there was an explanation for that. Mr and Mrs Mansell were well aware that there was no dietician available in Australia, although there was one available for consultation overseas, and in the same way, they were aware that at the commencement a nutritionist was employed, although she ceased to be employed some time after the franchise agreement was signed. I find that there was no additional reliance on representations made in the written documentary material relied upon. SureSlim did provide initial training and some ongoing training and assistance; the Mansells in fact signed documents stating how happy they were with this, albeit that they tried to resile from this while giving evidence and provided some unconvincing explanation for their original statements. There was certainly no representation intended to be relied upon as pleaded that the SureSlim franchise was sure to be successful in Australia, or that the return shown on the projected franchise budget would be achieved.
36 It is not necessary to deal with the claimed breach of the Code other than to say that I find that the disclosure document was included in the franchise agreement.
37 The claim under s51AC of the Trade Practices Act is somewhat confused, but leaving aside that based on contravention of the Franchising Code of Conduct, was not pressed by counsel and was not made out. It was not established although it was pleaded that there were conditions in the agreement not necessary for the legitimate protection of the SureSlim interests, nor that there was any other unconscionable conduct. In particular there is no evidence whatsoever to support the claim of unequal strength of bargaining positions and failure to understand the terms of the franchise agreement. For the first three months or so the Mansells in making their reports to SureSlim express satisfaction with the way things were going.
38 The cross-claimants also claim breach by SureSlim of the franchise agreement through failure to provide training programmes in accordance with Clause 7 of the agreement; failure to maintain and administer a marketing fund in accordance with Clause 13 and failure to provide the level of support provided for in the franchise agreement. None of these matters were established. A letter was sent by solicitors for the Mansells and Finlayson on 13 March 2002 raising concerns as to advertising, level of profits and level of support and seeking a mediation. The plaintiff’s solicitor responded to this pointing out that the requirement for mediation under the relevant code had not been met but expressing agreement to a mediation if the requirements were met and outstanding moneys paid. The response to this was the immediate establishment of the Weight Professionals operation without notice. No matters of repudiation were made out. In fact they were hardly argued.
39 For the most part the cross claim of Finlayson mirrors that of the Mansells and is equally without basis in fact. Once again the main representation relied upon was that of sales of programmes. Once again there is confusion between pre-contract representations and subsequent representations which seem to have little bearing on the matter. Claims under s51AC of the Trade Practices Act are equally without substance. Mr Finlayson was well aware of what he was doing when he entered into the agreement. There was never any representation that the Bondi Junction and Neutral Bay clinics would each sell more than one hundred customer programmes per month; in fact the Finlayson claims are an upward cascade of representations, namely first that the clinics were then selling forty customer programmes per month, that they would significantly increase these with advertising, they would sell a minimum of sixty to seventy programmes per month and that they would each sell one hundred customer programmes per month. None of these representations is established. I accept the evidence of Finlayson that Mr Tulloch said Mr Mansell was a merchant banker, but that did not induce Mr Finlayson to enter into the contract.
40 What seems to have happened is that the Mansells and Mr Finlayson were dissatisfied with the franchise agreements that they had entered into and thought that they could do better themselves without the obligation to pay franchise fees, but nevertheless conduct much the same sort of operation, albeit with a different doctor, a different pathology laboratory, and with a dietician and somewhat different programmes. They were and are still selling the programmes on what was agreed to be the good marketing tool of blood tests prior to diet presentation. I find that the only matter of significance to the cross-claimants was the number of sales which could be achieved per month. I also find that while figures were presented as to the number of sales which should be made there was never any representation of the nature required to establish misleading and deceptive conduct that that number of sales would be made. Misleading and deceptive conduct is quite different from enthusiastic selling of franchises. The cross claim fails.
Relief
41 The plaintiff is entitled to damages for breach of contract. Interim judgment should be entered against the Mansells for $50,000 and Finlayson for $43,000. Claims for interest and other damages claims should be referred to a Master.
42 The plaintiff is entitled to injunctions to enforce the restraint covenant. This should be limited as in area as stated and expire on 2 April 2004. The plaintiff is entitled to damages for breach for the period from 2 April 2002 until the making of orders.
43 The cross-claim should be dismissed.
44 I will stand the matter over to a date I will fix for the making of orders in accordance with this judgment.
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