Swan v Eltringham
[2013] TASSC 18
•17 May 2013
[2013] TASSC 18
COURT: SUPREME COURT OF TASMANIA
CITATION: Swan v Eltringham [2013] TASSC 18
PARTIES: SWAN, Roy William
v
ELTRINGHAM, Michael
ELTRINGHAM HOLDINGS PTY LTD
FILE NO: 979/2008
DELIVERED ON: 17 May 2013
DELIVERED AT: Hobart
HEARING DATE: 24 April 2013
JUDGMENT OF: Blow CJ
CATCHWORDS:
Trade and Commerce – Trade Practices Act 1974 (Cth) and related legislation – Consumer protection – Misleading or deceptive conduct or false representations – Particular cases – Other cases – Sale of sub-franchise – Misleading representations as to past sales, future sales and business experience – Breaches of Franchising Code of Conduct in not disclosing master franchise agreement.
Trade Practices Act 1974 (Cth), ss51AD, 52(1), 75B(1), 87(1).
Aust Dig Trade and Commerce [1097]
REPRESENTATION:
Counsel:
Plaintiff: B R McTaggart
Defendants: No counsel
Solicitors:
Plaintiff: Ogilvie Jennings
First Defendant: Self Represented
Second Defendant: Not Represented
Judgment Number: [2013] TASSC 18
Number of paragraphs: 60
Serial No 18/2013
File No 979/2008
ROY WILLIAM SWAN v MICHAEL ELTRINGHAM
and ELTRINGHAM HOLDINGS PTY LTD
REASONS FOR JUDGMENT BLOW CJ
17 May 2013
This case concerns a sub-franchise for the sale of steel-framed kit homes. The kit homes were marketed by a Queensland company named Steelbuilt Kit Homes Australia-Wide Pty Ltd. On 6 February 2006 that company entered into a "master franchise agreement" with the second defendant, Eltringham Holdings Pty Ltd ("EHPL"). The first defendant, Michael Eltringham, is a director of that company, and at all material times acted as its agent. By a franchise agreement dated 11 April 2006, EHPL granted a sub-franchise to the plaintiff, Roy Swan.
The plaintiff paid EHPL $81,000 for his sub-franchise. He went on to spend a further $10,464.43 on brochures, signage, a contribution towards a shared stall at Agfest, and yellow pages advertising, all for the purposes of the sub-franchise. However he did not succeed in selling a single steel-framed kit home. His sub-franchise came to an end as a result of the head franchise of EHPL being terminated by Steelbuilt pursuant to the terms of the master franchise agreement. In this action he is seeking to recover his expenditure from the defendants on the basis that EHPL committed a number of contraventions of the Trade Practices Act 1974 (Cth) ("the Act"), and that Mr Eltringham was a person engaged in, or involved in, those contraventions. The Act has been repealed, but it continues to apply in relation to acts and omissions prior to 1 January 2011, and to proceedings that were commenced, but not concluded, before then: Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010, Schedule 7, cls 6, 7. This is such a proceeding.
The plaintiff's contentions as to contraventions of the Act are as follows:
· He contends that, prior to the making of the sub-franchise agreement, Mr Eltringham made some oral representations to him and to a man named Ottaway; that those representations were false, misleading and deceptive; and that they amounted to contraventions of s52(1) of the Act.
· EHPL provided the plaintiff with a disclosure document in purported compliance with the Franchising Code of Conduct. In that document it was stated that Mr Eltringham was the proprietor of "Steelsmart Homes & Finance" in 2004. In fact he operated a business by that name from March or April 2004 until March 2006. The plaintiff contends that the representation as to when Mr Eltringham was the proprietor of that business was therefore misleading and deceptive, and a contravention of s52(1).
· The plaintiff contends that the disclosure document also contained false, misleading and deceptive material in relation to the master franchise agreement, in contravention of s52(1).
· The plaintiff contends that EHPL contravened cl 6B(2)(a) of the Franchising Code of Conduct in that it did not provide either a separate disclosure document in relation to the master franchise or a joint disclosure document that addressed obligations arising under the master franchise agreement; and that EHPL thereby contravened s51AD of the Act.
· The plaintiff contends that EHPL contravened cl 10(a) of the Franchising Code of Conduct, and thus s51AD, by failing to give the plaintiff a copy of that Code.
· The plaintiff contends that EHPL contravened cl 11(1) of the Franchising Code of Conduct, and thus s51AD, by entering into the sub-franchise agreement without first receiving from the plaintiff a written statement that he had received, read, and had a reasonable opportunity to understand the disclosure document and the Code.
· The plaintiff contends that EHPL contravened cl 11(2)(b)(ii) of the Franchising Code of Conduct, and thus also s51AD, on the basis of the following facts. The plaintiff had not obtained advice from an independent legal adviser, nor from an independent business adviser, nor from an independent accountant. EHPL was therefore obliged not to enter into the sub-franchise agreement until it received from the plaintiff a signed statement by him that he had been told that those kinds of advice should be sought, but had decided not to seek them. It entered into the sub-franchise agreement without any such statement.
The plaintiff contends that, but for these alleged contraventions, he would not have entered into the sub-franchise agreement. It is necessary to consider what contraventions occurred, and what difference, if any, they made in relation to the plaintiff's decision to enter into the sub-franchise agreement.
Oral representations
In the plaintiff's amended statement of claim, it is alleged that Mr Eltringham made three relevant oral representations:
· A representation to Mr Ottaway to the effect of, "There is a client in Old Beach who will purchase 50 kits a year from you."
· A second representation to Mr Ottaway on the same day, to the effect of, "I have sold 20 kits this year in the north."
· An oral representation to the plaintiff by telephone to the effect of, "I have sold 20 kits up north in a year and you can double that in the south."
Mr Eltringham represented himself at the trial, and EHPL was unrepresented, but they were represented by solicitors at an earlier stage in the proceedings. Those solicitors filed a defence in which it was admitted that Mr Eltringham said words to the plaintiff to the effect of, "I have sold 20 kits up north in a year", but the defendants denied that he had gone on to say, "and you can double that in the south". The allegation that oral representations were made by telephone was denied, as were the allegations of representations to Mr Ottaway.
At the trial, Mr Eltringham said in his opening speech, "I did make the statement to Mr Ottaway that I'd been selling 20 kit homes in the north of the State under the Steelsmart brand …". The plaintiff's case is that the Steelsmart brand was not mentioned. What was said amounts to another admission that Mr Eltringham said something to the effect that he had sold 20 kit homes in the north of the State.
The evidence given at the trial about oral representations did not measure up to the allegations in the amended statement of claim. Mr Ottaway gave evidence as to only one relevant conversation. He said that it occurred after a meeting attended by him, the plaintiff, Mr Eltringham, and a man from Queensland named Chris O'Dare. He was asked whether, subsequent to that meeting, he had further occasion to speak with Mr Eltringham. His answer began as follows:
"Yes, we did. After that meeting, some time after, it wouldn't have been too long, it was mentioned to us that there was a builder in the south of the State that was currently buying about fifty kit homes a year and that we would be able to have a spin off, off that and then all – the fact that he was building in the area of Old Beach in Hobart, so if we wanted to go and have a look, we could go and have a look at the product. That's what Roy [the plaintiff] and I did. We got in the ute and drove a across and had a look, saw some sub-contractors or employees of the builder on site ...".
Mr Ottaway gave evidence that he was present when Mr Eltringham spoke, but he did not say who else was present. Under cross-examination, he said that Mr Eltringham told him the name of the builder at Old Beach; that he could not remember the name; that the builder had left the State; and that the builder was building "spec homes" at Old Beach and then was proposing to move on to New Norfolk. He was not challenged about his evidence of being told "that we would be able to have a spin off, off that".
The plaintiff and Mr Eltringham both gave evidence, but neither of them said anything about the conversation recounted by Mr Ottaway. The plaintiff did not say that Mr Ottaway had passed on any information to him, nor that he had relied on any information about the builder in question.
The evidence of Mr Ottaway as to what Mr Eltringham said was unchallenged and uncontradicted. I have no reason to disbelieve him. I infer that, when he referred to "we" and "us", he was talking about the plaintiff and himself. On the evidence before me, there is no reason to think that anyone other than the plaintiff would have been present with him during that conversation with Mr Eltringham.
In his evidence-in-chief, the plaintiff gave evidence of a conversation with Mr Eltringham in March 2006. Referring to Mr Eltringham, he said:
"He conveyed that he had, in the previous twelve months, had sold fifteen to twenty kit homes and, which resulted in him making about $150,000."
He was asked whether Mr Eltringham had said where he sold those homes, and responded:
"In the Launceston area, north of the State and he said I could probably double that in the south."
The plaintiff did not give evidence as to whether this conversation was by telephone or face-to-face. He was not cross-examined about the conversation. Mr Eltringham did not say anything about any such conversation in his evidence. The plaintiff seemed to me to be an honest witness. I accept his unchallenged and uncontradicted evidence as to what Mr Eltringham said to him.
Before EHPL entered into the master franchise agreement with Steelbuilt, Mr Eltringham had been selling kit homes that were marketed by a separate business known as Steelsmart Kit Homes. The solicitors for the plaintiff administered interrogatories in relation to Steelsmart. Sworn answers were provided by Mr Eltringham, and by his wife as the proper officer of EHPL. Their answers establish that Mr Eltringham, as trustee of a family trust, operated a business known as "Steelsmart Homes & Finance" from about March or April 2004 until at least about October 2005; that employees of the family trust recorded the dates of contracts entered into for the sale of Steelsmart kit homes; and that the last recorded contract date was 24 January 2006. The master franchise agreement with Steelbuilt was entered into on 5 February 2006, as I have said.
It may have been true that the builder at Old Beach was buying about 50 kit homes per year. There is no evidence before me to the contrary. But he was certainly not buying 50 Steelbuilt kits a year from EHPL, since EHPL had only been selling them for a couple of months when it was negotiating with the plaintiff. However the plaintiff's solicitors have not pleaded that a misleading or deceptive statement was made about the builder's past purchases.
The case against the defendants is stronger in relation to representations as to past sales in the north of the State. Mr Eltringham may very well have sold 15 to 20 kits in a year in the north, but he had certainly not sold that many Steelbuilt kits in the north over a year. He had only just started selling Steelbuilt kits at the time of the relevant representation. His representation suggested that he had been selling Steelbuilt kits, and that people were willing to buy them. But until about 6 February 2006 he had been selling a different brand of kits. There is no suggestion that his previous involvement with Steelsmart was disclosed to the plaintiff otherwise than in a disclosure document provided by EHPL, which showed only that Mr Eltringham was the proprietor of the business named "Steelsmart Homes & Finance" in 2004. The plaintiff gave evidence that he would have been more cautious if he had known that the involvement in that business had continued after 2004. I infer that nothing was said to him about any of the 15 to 20 kit homes that were said to have been sold in the north being Steelsmart kits, not Steelbuilt kits. Mr Eltringham's representation as to sales in the north would have conveyed the impression that he had sold 15 to 20 Steelbuilt kit homes in a year. It was therefore a misleading and deceptive representation. Mr Eltringham had knowledge of the facts and circumstances that made it misleading and deceptive. The solicitors admitted in the defence that, at all material times, he was the agent of EHPL, and EHPL was engaged in trade or commerce.
The evidence therefore establishes that the making of the representation that Mr Eltringham had sold 15 to 20 kits in a year in the north amounted to a contravention of s52(1) of the Act by EHPL. That subsection read as follows:
"(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."
I have accepted evidence of Mr Eltringham making two predictions – a prediction to Mr Ottaway described by the words, "we would be able to have a spin off, off that", and a prediction to the plaintiff to the effect that he could probably double the northern sales in the south. The plaintiff contends that each of those predictions amounted to misleading and deceptive conduct for the purposes of s52(1) of the Act.
Section 51A of the Act contained provisions relating to predictions. It provided as follows:
"(1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.
(3) Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead."
The defendants have not adduced evidence that there were reasonable grounds for making either of the two representations. By virtue of s51A(2), EHPL is therefore deemed not to have had reasonable grounds for making them. By virtue of s51A(1), each of those representations must be taken to have been misleading. It follows that each of the two representations constituted a contravention of s52(1) by EHPL. However s51A does not apply in relation to the plaintiff's claim against Mr Eltringham.
The Franchising Code of Conduct
Section 51AE of the Act made provision for regulations prescribing an "industry code", and declaring the industry code "to be a mandatory industry code".
The Trade Practices (Industry Codes – Franchising) Regulations 1998 were made pursuant to that section. The Franchising Code of Conduct is set out in a schedule to those regulations. Under reg3 of those regulations, it is prescribed as an industry code and declared to be a mandatory industry code.
Section 51AD of the Act provided:
"A corporation must not, in trade or commerce, contravene an applicable industry code."
Disclosure document – Steelsmart information
Clause 6B(1)(a) of the Franchising Code of Conduct requires a franchisor to give a current "disclosure document" to a prospective franchisee. The form and contents of a disclosure document are prescribed by that Code. Queensland solicitors acting for the master franchisor prepared a disclosure document and sent it to EHPL. Mr Eltringham provided it to the plaintiff on behalf of EHPL.
Clause 3.3.1 of that document listed Mr Eltringham's business experience, specifying the names of several businesses, and dates in relation to each of them. The last item in that list read as follows:
"Proprietor of Steelsmart Homes & Finance 2004".
As I have said, the defendants' answers to interrogatories established that Mr Eltringham had operated that business from about March or April 2004 until at least about October 2005, and that sales records showed contracts being entered into in relation to the business of Steelsmart and the sale of its kit homes on dates up to and including 24 January 2006.
It follows that cl 3.1.1 of the disclosure document was inaccurate in that it showed Mr Eltringham to have been the proprietor of Steelsmart Homes & Finance only in 2004, when in fact he had carried on business in that name, as the trustee of a family trust, not just in 2004, but also from the end of 2004 until 2006. The disclosure statement was misleading and deceptive, in that it contained a false representation to the effect that Mr Eltringham had only carried on that business in 2004. By providing that disclosure statement to the plaintiff in trade and commerce, EHPL contravened s52(1) of the Act.
Inadequate disclosure of the master franchise agreement
Clause 7.1 of the disclosure document was required to set out information about intellectual property and the franchisee's right to use it. In that clause EHPL disclosed the existence of a registered trade mark, the existence of copyright in certain documents, and the existence of certain confidential information. Thereafter, cl 7.1 of the disclosure document contained the following:
"Who owns the intellectual property ?
Eltringham Holdings Pty Ltd has been licensed to use the trade mark, the copyright, confidential information and any other intellectual property rights.
Agreements that significantly affect the franchisor's right to use or give others the right to use the intellectual property.
A Master Franchise Agreement has been entered into by which the Franchisor has the right to Sub-Franchise and sub-licence the intellectual property rights.
If agreement exists:
Parties to the
agreementNature and
extent of
limitationDuration of
agreementConditions under which
agreement may be
terminatedN/A N/A N/A N/A
".
I infer that "N/A" was always intended by EHPL to mean "not applicable". Thus the material that I have quoted above was internally contradictory. At one point it was said that a master franchise agreement existed but, when required to disclose information relating to that agreement, EHPL four times responded with "N/A".
Mr Eltringham's wife was called as a witness at the trial by counsel for the plaintiff. She gave evidence to the effect that she was a director of EHPL, and produced the master franchise agreement, which was tendered as an exhibit. The information required to be included in the disclosure document, but not included in it, was as follows:
· As I have said, Steelbuilt Kit Homes Australia-Wide Pty Ltd and EHPL were the parties to the agreement.
· There were a number of limitations on the use of the relevant intellectual property. The master franchise was granted to EHPL only in respect of Tasmania. EHPL was not permitted to appoint a sub-franchisee without the express approval of the master franchisor.
· The agreement was to operate for five years from the date of its execution. It was dated 6 February 2006.
· Under cl 5.4.1, the master franchisor was entitled to terminate the agreement if EHPL failed to achieve defined performance criteria. Those criteria specified gross sales (including sales by sub-franchisees) of at least $970,000 within the first year of the term; at least $1.1 million within the second year; at least $1.25 million within the third year; at least $1.4 million within the fourth year; and at least $1.55 million within the fifth year.
Mrs Eltringham gave evidence that she sent the plaintiff a copy of the master franchise agreement together with the disclosure document, other papers, and a note written by her reading, "Mr Swan, when you return the signed papers to say that you've received all these documents, could you return this master franchise agreement with it because that was my only copy." She went on to say that she and her husband received that copy of the master franchise agreement back, together with a signed statement to say that the plaintiff had received "all those documents". However the plaintiff gave evidence that he knew nothing of any master franchise agreement until 2009 when, for the first time, he tried to place an order for a Steelbuilt kit home. He said that he made a telephone call; that he thought it was Mrs Eltringham that he spoke to; and that he was told that they no longer had the franchise.
Mrs Eltringham's evidence as to what she sent the plaintiff is inconsistent with some of the documentary evidence. One of the exhibits tendered at the trial was a letter that Mr Eltringham wrote to the plaintiff at an early stage forwarding documents to him. In that letter he asked the plaintiff to fill out and return a franchise application form, a privacy form, and a confidentiality letter, all apparently sent under cover of his letter. There was no mention of a master franchise agreement. Subsequently Mr Eltringham wrote the plaintiff another letter, dated 24 March 2006, thanking him for returning "the franchise documents" promptly, and saying, "I have enclosed a sample franchise agreement for you to have a look at and get your solicitors to read so we can proceed to get you the originals to sign." Following a discussion about changes to the wording of the agreement, Mr Eltringham wrote the plaintiff another letter, dated 11 April 2006, saying, "Enclosed is your franchise agreement for you to sign and return so we can have a copy sent to you for your records". There was no mention of the master franchise agreement in any of this correspondence. It all came from Mr Eltringham, not his wife. The plaintiff did sign a receipt, dated 15 May 2006, for certain documents that were forwarded to him, but they were described as "copies of the franchise agreement and disclosure documents". No master franchise agreement was referred to. When discovery was made, the note that Mrs Eltringham said she wrote was apparently not listed in the list of documents of either defendant.
The plaintiff was by no means ideally cautious in entering into the sub-franchise agreement, but he was certainly not reckless. He read the draft agreement that was sent to him, noted provisions that concerned him, and contacted Mr Eltringham about them. If he had been sent a copy of the master franchise agreement, I think he would have been sufficiently cautious at least to have studied it, noticed the clause providing for termination if performance criteria were not met, contacted Mr Eltringham about that, and made a copy of the document for himself before returning the Eltringhams' copy. Mr Eltringham gave evidence to the effect that he relied on the Queensland solicitors to prepare the appropriate documents for forwarding to the plaintiff. However I do not think it would be appropriate to draw any inference based on the proposition that those solicitors would have done the right thing. When they prepared the sub-franchise agreement, it was worded in such a way that anyone reading it would not have realised that it was to be an agreement between sub-franchisor and sub-franchisee. They omitted important information about the master franchise agreement from cl 7.1 of the disclosure document. There is no evidence that they prepared either a disclosure document relating to the master franchise or a joint disclosure document as required by cl 6B(2)(a) of the Franchising Code of Conduct, which I will deal with shortly.
After considering all these matters, I have concluded that I simply do not believe Mrs Eltringham's evidence about what she wrote and sent to the plaintiff. I accept the plaintiff's evidence as to how little he received and how little he knew.
The material that I have quoted from cl 7.1 above misleadingly suggested that EHPL had an unlimited right to give the plaintiff the right to use the relevant intellectual property, and to use it indefinitely, without any risk of him losing the right to use that intellectual property as a result of the termination of an agreement between EHPL and another entity. By providing the disclosure document with that material in it, EHPL engaged in misleading and deceptive conduct in trade and commerce in contravention of s52(1).
Contravention of cl 6B(2)(a) of the Code
Clause 6B(2)(a) of the Franchising Code of Conduct reads as follows:
"(2) If a subfranchisor proposes to grant a subfranchise to a prospective subfranchisee:
(a) the franchisor and subfranchisor must:
(i)give separate disclosure documents, in relation to the master franchise and the subfranchise respectively, to the prospective subfranchisee; or
(ii)give to the prospective subfranchisee a joint disclosure document that addresses the respective obligations of the franchisor and the subfranchisor".
The disclosure document provided by EHPL to the plaintiff related only to the sub-franchise. No separate document relating to the master franchise was provided. Clause 6B(2)(a)(ii) was therefore contravened by EHPL. It follows that EHPL thereby also contravened s51AD.
No copy of the Code
Clause 10(a)(i) of the Franchising Code of Conduct required a franchisor to give a copy of that Code to a prospective franchisee at least 14 days before the prospective franchisee entered into a franchise agreement. The plaintiff entered into the franchise agreement with EHPL without that having been done. It follows that EHPL contravened cl 10, and that it therefore also contravened s51AD.
Contravention of cl 11(1) of the Code
Clause 11(1)(a) of the Franchising Code of Conduct provided that a franchisor must not enter into a franchise agreement unless the franchisor "has received from the franchisee or prospective franchisee a written statement that the franchisee or prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document and this code". EHPL entered into the franchise agreement without having received any such written statement from the plaintiff. It follows that EHPL contravened cl 11(1)(a) of the Code, and also s51AD.
Contravention of cl 11(2)(b)(i) of the Code
Clause 11(2) of the Franchising Code of Conduct contains the following:
"(2)Before a franchise agreement is entered into, the franchisor must have received from the prospective franchisee:
(a)signed statements, that the prospective franchisee has been given advice about the proposed franchise agreement or franchised business, by any of:
(i) an independent legal adviser;
(ii) an independent business adviser:
(iii) an independent accountant; or
(b)for each kind of statement not received under paragraph (a), a signed statement by the prospective franchisee that the prospective franchisee:
(i) has been given that kind of advice about the proposed franchise agreement or franchised business; or
(ii) has been told that that kind of advice should be sought but has decided not to seek it."
As I have said, the plaintiff did not obtain any advice from a legal adviser, a business adviser, or an accountant, and entered into the franchise agreement with EHPL without providing a statement pursuant to cl 11(2)(b)(ii). It follows that EHPL contravened that provision, and also s51AD.
The claim against EHPL
The plaintiff is claiming $91,464.43 by way of damages pursuant to s82(1) of the Act. In the alternative he is seeking orders under ss87(1A) and 87(2)(c) for a refund of the purchase price of $81,000 which he paid for the sub-franchise. He is also seeking an order under s87(2)(a) declaring the sub-franchise agreement void.
Section 82(1) read as follows:
"(1) Subject to subsection (1AAA), a person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV, IVA, IVB or V or section 51AC may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."
EHPL contravened s51AD, which is in Part IVB of the Act, and s52(1), which is in Part V. The plaintiff contends that the losses that he suffered were caused by the conduct of EHPL in contravening those provisions. He contends that he relied on Mr Eltringham's representations and the documents provided to him, and would not otherwise have proceeded with the purchase of the sub-franchise.
Some of the contraventions were more significant than others. I am not satisfied that sending a copy of the Franchising Code of Conduct to the plaintiff would have made any difference to his decision to proceed with his purchase. If he had been told to seek advice from a lawyer, a business adviser, and an accountant, I expect he would have been quite willing to sign a statement that he had decided not to seek any such advice, as contemplated by cl 11(2)(b)(ii) of the Code.
However, as I have indicated, the plaintiff did exercise some degree of caution in relation to the transaction. He looked at the work being done at Old Beach, but there is no suggestion that he spoke to the builder. There is no suggestion that he asked Mr Eltringham to produce any of his records as to sales in the north. Whilst he did look at the first edition of the agreement with EHPL and request some changes, he did not study the final edition carefully enough to notice that not all of the requested changes had been made. He proceeded to sign the agreement and pay the $81,000 without noticing that its provisions as to annual sales were unchanged. The documents provided to him contained some things that an astute reader might have recognised as clues indicating the existence of a master franchise agreement, particularly the reference to it in cl 7.1 of the disclosure document. He evidently did not notice anything that tended to suggest that EHPL was no more than a franchisee.
However I think it reasonable to infer that, in deciding to proceed, he took into account what Mr Eltringham had said about the builder at Old Beach and the sales in the north. I also think it reasonable to infer that, if he had been made aware of the master franchisor's powers to cancel the master franchise and thus bring his sub-franchise to an end in the event of EHPL's annual sales not satisfying the performance criteria in the master franchise agreement, as he should have been by disclosure in cl 7.1 of the disclosure document, and by the provision of a disclosure document from the master franchisor, then he would not have entered into the sub-franchise agreement. Further, I accept his evidence that, if there had been accurate disclosure of Mr Eltringham's involvement in the Steelsmart business continuing into 2006, he would have been much more cautious. In all probability, that caution would have led him to refrain from entering into the sub-franchise agreement.
I am therefore satisfied that he entered into the sub-franchise agreement as a result of EHPL's contraventions of s52(1), and of its contravention of s51AD in failing to comply with cl 6B(2)(a) of the Franchising Code of Conduct.
In my view the advertising expenditure incurred by the plaintiff was reasonable, and not out of proportion to the cost of the sub-franchise. No defence based on partial responsibility has been pleaded under s82(1B). It follows that the plaintiff should recover $91,464.43 from EHPL. There was a claim for interest, but that was abandoned. I see no need to consider the claim for a refund by way of alternative relief based on ss87(1A) and 87(2)(c).
I see no need to make an order under s87(2)(a) declaring the sub-franchise agreement void. By virtue of s87(1), I may only do that if I consider that such an order will compensate the plaintiff in whole or in part for his loss or damage, or will prevent or reduce that loss or damage. I cannot see how that would be achieved by declaring the agreement void. I will therefore not make such a declaration.
The claim against Mr Eltringham
Under s82(1) of the Act, which I have quoted above, a person who has suffered loss or damage "by conduct of another person that was done in contravention of Part … IVB or V … may recover the amount of the loss or damage by action … against any person involved in the contravention".
When s87(1) extended liability for damages to "any person involved in the contravention", it engaged the operation of s75B(1) of the Act. That subsection read as follows:
"(1) A reference in this Part to a person involved in a contravention of a provision of Part IV, IVA, IVB, V or VC, or of section 75AU, 75AYA or 95AZN, shall be read as a reference to a person who —
(a)has aided, abetted, counselled or procured the contravention;
(b)has induced, whether by threats or promises or otherwise, the contravention;
(c)has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d)has conspired with others to effect the contravention."
When Mr Eltringham told the plaintiff that he had sold 15 to 20 homes in the north of the State, he knew that he had not sold that many Steelbuilt homes in the north. What he said was a contravention of s52(1) because he misleadingly implied that he had sold that many Steelbuilt homes. Because of his knowledge of what he had and had not sold, he was knowingly concerned in that contravention within the meaning of s87(1)(c). He went on to tell the plaintiff that he "could probably double that in the south". There were no reasonable grounds for making that prediction because EHPL had become a Steelsmart franchisee so recently that the response of the Tasmanian market to Steelsmart's products was unknown and unpredictable. Mr Eltringham must have known that. In my view he was knowingly concerned in EHPL's contravention of s52(1) constituted by the making of that prediction. Thus, for the purposes of s87(1), Mr Eltringham was a person involved in the contravention of s52(1) in relation to both his representation as to past sales in the north and his prediction as to future sales in the south. To that extent, he was a "person involved in" contraventions for the purposes of s82(1), and liable to pay damages pursuant to that subsection.
However Mr Eltringham is not liable, in my view, in respect of any of the other contraventions of the Act by EHPL. The reverse onus provisions of s51A apply only to a corporation. For the purposes of the plaintiff's claim against Mr Eltringham, s51A must therefore be disregarded. There is no evidence that Mr Eltringham did not have reasonable grounds for representing that the plaintiff might get a "spin off" in relation to the builder who was working at Old Beach. I am therefore not satisfied on the balance of probabilities that he was a person involved in a contravention of s52(1) in respect of a representation in the conversation with Mr Ottaway. The documentation that was provided to the plaintiff for the purposes of the Franchising Code of Conduct was all prepared by the solicitors for the master franchisor. There is no reason to think that Mr Eltringham was aware that, in any respect, any of that documentation failed to comply with the Code, nor that anything appearing in it was misleading or deceptive. It follows that, apart from the representation concerning the sales in the north, nothing that he did amounted to involvement in a contravention within the meaning given to those words in s75B(1) of the Act.
However the contravention concerning sales in the north was a significant contributing cause of the plaintiff's decision to enter into the sub-franchise agreement, even though it was not the sole cause. The losses totalling $91,464.43 were therefore losses suffered as a result of that contravention. The plaintiff is therefore entitled to recover that amount from Mr Eltringham by way of damages under s82(1). There is therefore no need to consider the claim for a refund by way of alternative relief pursuant to ss87(1A) and 87(2)(c).
The making of the representation about sales in the north also constituted a contravention by Mr Eltringham of s14(1) of the Fair Trading Act 1990. That subsection contained the following:
"(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is like to mislead or deceive."
Section 37 of that Act conferred a right to recover damages. It read as follows:
"(1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of this Act may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."
That Act was repealed by the Australian Consumer Law (Tasmania) (Consequential Amendments) Act 2010. However this action was instituted before the repeal. The Acts Interpretation Act 1931, s16(1), provides as follows:
"(1) Where an Act repeals any other enactment then, unless the contrary is expressly provided, such repeal shall not —
(a) …;
(b) …;
(c) affect any right, privilege, obligation, or liability acquired, accrued, or incurred under any enactment so repealed;
(d) …; or
(e) affect any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid —
and any such investigation, legal proceeding, or remedy may be instituted, continued, or enforced, and any such penalty, forfeiture, or punishment may be imposed as if the repealing Act had not been passed."
All of the ingredients of a claim for damages under the Fair Trading Act in respect of the misleading statement about sales in the north were pleaded in the amended statement of claim. It follows that the plaintiff is entitled to the sum claimed by way of damages from Mr Eltringham not just under the Trade Practices Act, but also under the Fair Trading Act.
Conclusion
For the reasons stated, I order that judgment be entered for the plaintiff against both defendants for $91,464.43.
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