Swevenings Pty Ltd v Ferguson Consolidated Holdings Pty Ltd & Anor (No.4) - [2009] FMCA 291

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SWEVENINGS PTY LTD v FERGUSON CONSOLIDATED HOLDINGS PTY LTD & ANOR (No.4)

[2009] FMCA 291

TRADE PRACTICES – Misleading and deceptive conduct – sale and purchase of business – entry into licence agreement – alleged franchise agreement.

PRACTICE & PROCEDURE – Admission – whether admission can be withdrawn – relevant principles – factors for consideration.

Federal Court Rules O.22, r.4(2)
Federal Magistrates Act 1999 (Cth), ss.3, 42
Federal Magistrates Court Rules 2001 (Cth), r.1.03
Trade Practices Act 1974, ss.51AD, 52
Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) Sch.2, cl.4

ACCC v Kyloe [2007] FCA 1522
Celestino v Celestino (unreported, Full Court of Federal Court of Australia, 16 August 1990)
Deangrove Pty Ltd (Receivers and Managers appointed) v Commonwealth Bank of Australia [2003] FCA 268
Goodall v Nationwide News Pty Ltd [2007] FMCA 218
Hill End Gold Ltd v First Tiffany Resource Group Corporation [2008] NSWSC 866
Murran Investments Pty Ltd v Aromatic Beauty Products Pty Ltd (2000) 191 ALR 579; [2000] FCA 1732
Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146
Swevenings Pty Ltd v Ferguson Consolidated Holdings Pty Ltd & Anor (No 2) [2008] FMCA 1582
Swevenings Pty Ltd v Ferguson Consolidated Holdings Pty Ltd & Anor (No 3) [2009] FMCA 255

Applicant:

SWEVENINGS PTY LTD

First Respondent:

FERGUSON CONSOLIDATED HOLDINGS PTY LTD

Second Respondent:

ERIC JOHN FERGUSON

File Number:

PEG 45 of 2008

Judgment of:

Lucev FM

Hearing date:

3 April 2009

Date of Last Submission:

3 April 2009

Delivered at:

Perth

Delivered on:

6 April 2009

REPRESENTATION

Counsel for the Applicant:

Mr W Chestnutt

Solicitors for the Applicant:

Mackinlays

Counsel for the Respondents:

Ms G Visscher

Solicitors for the Respondents:

Patrick Whight

ORDERS

That part of the amended application in a case which seeks to withdraw the admission by the respondents of a franchising agreement is dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

PEG 45 of 2008

SWEVENINGS PTY LTD

Applicant

And

FERGUSON CONSOLIDATED HOLDINGS PTY LTD

First Respondent

ERIC JOHN FERGUSON

Second Respondent

REASONS FOR JUDGMENT

Introduction

The substantive application in this matter alleges:
a)misleading and deceptive conduct by the first respondent contrary to s.52 of the Trade Practices Act 1974 (Cth)[1] and accessorial liability on the part of the second respondent; and
b)contravention of an applicable Industry Code contrary to s.51 AD of the TP Act, namely the Franchising Code of Conduct,[2]
by reason of which the applicant says it has suffered loss and damage.
[1] “TP Act”.
[2] See the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) (“Franchising Code Regulations”).
On 27 March 2009 the first and second respondents[3] filed an application in a case. That application sought to strike out either the whole, or alternatively various paragraphs, of the further amended statement of claim, and for the making of various orders concerning discovery, abridgement of time and costs. The application in a case so far as it related to striking out the further amended statement of claim was heard and determined, with that part of the application in a case being dismissed.[4]
[3] “the respondents”
[4] Swevenings Pty Ltd v Ferguson Consolidated Holdings Pty Ltd & Anor (No 3) [2009] FMCA 255 at para.33 per Lucev FM (“Swevenings (No 3)”).
At the time of handing down judgment in relation to the strike out application the respondents indicated that an amended application in a case had been filed. That amended application seeks the following:
7.That the Respondents have leave to withdraw admissions as to a franchise made in an amended defence and counterclaim.
8.That the Respondents have leave to file and serve a substituted defence and counterclaim in accordance with the annexed minute of substituted defence and crossclaim and that service be dispensed with.
At the handing down of the judgment in relation to the strike out application on 30 March 2009 the Court ordered that the further amended application in a case be adjourned to 11.00am on 3 April 2009 for argument of the amendment to the application seeking to withdraw an admission. The outcome of that part of the application was to be determined first because of its possible consequential effect in respect of any substituted defence and counterclaim.

History

It is appropriate to set out some of the history of the pleadings in this matter.
The applicant filed a statement of claim in the Federal Court on 3 August 2006. The statement of claim alleged that on 28 February 2006 the applicant entered into an agreement, called the Midland Agreement, with the second respondent to purchase a business known as Woodstock Furniture Midland[5] for $175,500 of which $120,000 was allocated to goodwill.[6] In relation to the question of franchise agreements the statement of claim pleaded as follows:
[5] “the Midland Business”.
[6] statement of claim, para.7.
36.The Applicant and First Respondent entered into an oral agreement by which $20,000 of the $120,000 allocated to goodwill pleaded in paragraph 7 above, would pay for what the parties described as a “licence” to conduct the Midland Business.
37.On 28 February 2005 the Applicant and the First Respondent entered into the Cockburn/Rockingham Agreement whereby the Applicant agreed to pay the First Respondent $20,000 which was described by the parties as a “licence” to open and operate a business trading under the name “Woodstock Furniture Rockingham” (“the Cockburn/Rockingham Business”).
38.On or around 27 October 2005, the Applicant and First Respondent entered into:
38.1.a collateral contract to the Midland Agreement that set out the terms and conditions for the conduct of the Midland Business; and
38.2a collateral contract to the Cockburn/Rockingham Agreement that set out the terms and conditions for the conduct of the Cockburn/Rockingham Business.
39.Each collateral contract pleaded in paragraph 38 above included the following term.
9.2 The Licencee must pay for all stock of the approved products ordered prior to delivery or in accordance with any credit terms pursuant to this agreement or agreed upon between the parties from time to time in writing. This payment will include the cost of the goods plus a 10% payment of the cost to the licensor.
40.Each collateral contract pleaded in paragraph 38 above set out the following terms:
5.1 The Licensor will, pursuant to this agreement permit the Licencee to use the image and be part of the Buying Group.
5.2 The Licensor will train the Licensee within the territory.
5.3 The Licensor will supply the approved products, or co-ordinate their supply from approved suppliers. The Licensee shall acquire from the Licensor or from approved suppliers all quantities of the approved products required by the Licensee.
5.4 All products offered for sale by the Licensee shall be:
5.4.1 approved products supplied by the Licensor; or
5.4.2 up to 10% from an alternative supplier with the prior written consent of the Licensee.
41.Each collateral contract pleaded in paragraph 38 above set out the following terms.
2.2 the parties acknowledge that Licensor is the proprietor of all the marks and the brand names used in the Group…
42.Both the Midland Agreement and the Cockburn/Rockingham Agreements are Franchise Agreements pursuant to clause 4 of the Code.
42.1By reason of the facts pleaded in paragraphs 7, 36, 37 and 38 above, the requirements pursuant to subclause 4(1)(a) of the Code are satisfied.
42.2By reason of the facts pleaded in paragraph 40 above, the requirements pursuant to subclause 4(1)(b) of the Code are satisfied.
42.3By reason of the facts pleaded in paragraph 41 above, the requirements pursuant to subclause 4(1)(c) of the Code are satisfied.
42.4By reason of the licence fees pleaded in paragraphs 36, 37 and 39 above, the requirements pursuant to subclause 4(1)(d) of the Code are satisfied.[7]
[7] Transcribed without amendment.
An amended statement of claim was filed by the applicant on 2 November 2006 in the Federal Court. No amendments material to the franchise agreement issue were made.
On 17 October 2006 the respondents filed a defence and cross-claim in which they:
a)admitted paragraph 7 of the statement of claim;
b)denied paragraphs 36 and 37 of the statement of claim; and
c)save as to an irrelevant issue concerning the City of Rockingham, admitted paragraphs 38 to 42.
The admission in relation to paragraph 42 is significant given that it is that paragraph which pleads that the Midland Agreement and the Cockburn/Rockingham Agreements are franchise agreements pursuant to clause 4 of the Franchising Code of Conduct.
On 12 February 2008 a detailed affidavit of ten pages and twenty-eight paragraphs with more than one hundred pages of annexures was sworn by Mr Ferguson and filed in the Federal Court on 26 February 2008.[8] Mr Ferguson’s February 2008 Affidavit dealt with the existence of a buying group and the relevant licence agreement, which was annexed, and dealt with in detail.[9]
[8] Mr Ferguson’s February 2008 Affidavit.
[9] Mr Ferguson’s February 2008 Affidavit, paras.9-14.
A re-amended defence and cross-claim was filed in this Court on 8 April 2008 by the respondents. It contains the same admissions with respect to the franchise agreement as the defence and cross-claim filed on 17 October 2006.
On 10 June 2008 orders were made by the Court setting the matter down for hearing for four days in October 2008. At that stage the hearing was to be conducted on the basis of the re-amended defence and cross-claim filed in this Court on 8 April 2008 by the respondents.
Following applications in a case heard on 8 September 2008 the Court refused to adjourn the October 2008 hearing and, on the basis that the respondents would provide further and better discovery by 19 September 2008 ordered that the applicant file any further amended statement of claim by 26 September 2008, and any amended response or defence by the respondents was to be filed by 3 October 2008.
The history of the matter up to the making of further orders on 18 September 2008 and thereafter to 24 November 2008 is set out in Swevenings Pty Ltd v Ferguson Consolidated Holdings Pty Ltd & Anor (No 2).[10] As is evident from the Court’s Reasons for Judgment in Swevenings (No 2), from early September 2008 it was the various defaults of the respondents, together with the withdrawal of various lawyers acting for them and the medical condition of the second respondent, which caused the October 2008 hearing dates to be vacated, and then the December 2008 hearing dates to be vacated, and for the matter to be listed yet again for a further four days in April 2009.[11]
[10] [2008] FMCA 1582 (“Swevenings (No 2)”).
[11] See the orders in Swevenings (No 2).
In a further amended statement of claim filed in this Court on 21 October 2008[12] the applicant essentially re-pleaded in different form the pleadings contained in the original statement of claim with respect to the Franchising Code of Conduct, and at paragraph 49 of the further amended statement of claim (being the old paragraph 42 of the amended statement of claim and original statement of claim) simply pleaded that:
The Midland Agreement and the Cockburn Licence and the Rockingham Licence are Franchise Agreements pursuant to clause 4 of the Code.
[12] The further amended statement of clalim was filed four days late, but this was, in the Court’s view, “understandable in light of the respondents ongoing failure to provide discovery in accordance with the 8 September 2008 Discovery Orders”: Swevenings ((No 2)) at para.18 per Lucev FM.
The particularisation of satisfaction of the various provisions of clause 4 of the Franchising Code of Conduct was deleted in the further amended statement of claim.
In orders made on 22 December 2008 no further orders were made concerning any amended response or defence by the respondents.
On 28 January 2009 new solicitors for the respondents filed a Notice of Address for Service and came onto the record for the respondents.
On 26 February 2009 (almost a month out of time) the applicant filed a reply and amended defence to the respondent’s re-amended defence and cross-claim. Significantly, the reply and amended defence joined issue with the re-amended defence and cross-claim, “[s]ave insofar as the same consists of admissions”.
On 27 February 2009 there was mediation before a Registrar of the Court. There was no settlement of the proceedings.
At the request of the respondents a directions hearing was held on 16 March 2009. The directions hearing was adjourned to 17 March 2009, when the Court made an order that the respondents file and serve their defence to the applicant’s further amended statements of claim on or before 23 March 2009. No such defence was filed. Rather on 27 March 2009 the respondents made the unsuccessful strike out application referred to above,[13] and on 30 March 2009 made this application to withdraw an admission, and sought leave to file an annexed minute of substituted defence and cross-claim. Hence, no defence to the applicant’s further amended statement of claim has yet been formally filed.
[13] See para. 3 above, and Swevenings (No 3).
The issue of the withdrawal of the admission concerning the franchise agreement did not arise until 27 March 2009 when, in the course of submissions in response to the respondents’ strike out application, Counsel for the applicant pointed out that the franchise agreement was in fact admitted.

Law

A franchise agreement is defined in the Franchising Code Regulations as follows:
Meaning of franchise agreement
(1)   A franchise agreement is an agreement:
(a)    that takes the form, in whole or part, of any of the following:
(i)    a written agreement;
(ii)    an oral agreement;
(iii)    an implied agreement; and
(b)    in which a person ( the franchisor ) grants to another person ( the franchisee ) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor; and
(c)    under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol:
(i)    owned, used or licensed by the franchisor or an associate of the franchisor; or
(ii)    specified by the franchisor or an associate or the franchisor; and
(d)    under which, before starting business or continuing the business, the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor an amount including, for example:
(i)    an initial capital investment fee; or
(ii)    a payment for goods or services; or
(iii)    a fee based on a percentage of gross or net income whether or not called a royalty or franchise service fee; or
(iv)    a training fee or training school fee;
but excluding:
(v)    payment for goods and services at or below their usual wholesale price; or
(vi)    repayment by the franchisee of a loan from the franchisor; or
(vii)    payment of the usual wholesale price for goods taken on consignment; or
(viii)    payment of market value for purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue business under the franchise agreement.
(2)   For subclause (1), each of the following is taken to be a franchise agreement:
(a)    transfer, renewal or extension of a franchise agreement;
(b)    a motor vehicle dealership agreement.
(3)   However, any of the following does not in itself constitute a franchise agreement:
(a)    an employer and employee relationship;
(b)    a partnership relationship;
(c)    a landlord and tenant relationship;
(d)    a mortgagor and mortgagee relationship;
(e)    a lender and borrower relationship;
(f)    the relationship between the members of a cooperative that is registered, incorporated or formed under any of the following laws:
(i) Co‑operatives Act 1992 of New South Wales;
(ii)    Co‑operatives Act 1996 of Victoria;
(iii) Cooperatives Act 1997 of Queensland;
(iv) Co‑operative and Provident Societies Act 1903 of Western Australia;
(v) Co‑operatives Act 1997 of South Australia;
(vi)    Co‑operative Industrial Societies Act 1928 of Tasmania;
(vii) Co‑operative Societies Act 1939 of the Australian Capital Territory;
(viii) Co‑operatives Act 1997 of the Northern Territory;
(ix)    the Corporations Act 2001 .[14]
[14] Franchising Code Regulations, Sch.2, cl.4.
Order 22 r.4(2) of the Federal Court Rules provides that a party cannot withdraw an admission operating for the benefit of another party without the consent of that other party or the leave of the Court.
Before an admission can be withdrawn the Court must be satisfied that:
a)an error or mistake by or on behalf of the party seeking to withdraw the admission has been demonstrated;
b)there is a sensible explanation for the making of the admission, and that explanation has been provided, based on evidence of a solid and substantial character; and
c)no injustice will be occasioned to the other party by the withdrawal of the admission, other than hardship by delay or costs which can be accommodated by an appropriate order for costs.[15]
[15] Murran Investments Pty Ltd v Aromatic Beauty Products Pty Ltd (2000) 191 ALR 579 at 589 per Mansfield J; [2000] FCA 1732 at para.44 per Mansfield J (“Murran Investments”), referring to Celestino v Celestino (unreported, Full Court of Federal Court of Australia, Spender, Miles and von Doussa JJ, 16 August 1990) at pages 8-10.
In Murran Investments the second applicant swore two affidavits asserting the relevant admission had been made in error and seeking to explain how the admission came to be made in error.[16] The Federal Court found that:
a)the applicants had established that the factual allegations had been made in error on the basis of a misunderstanding by the second applicant as to the performance of the franchise business;
b)the misunderstanding was explained by the second applicant’s limited role in the business prior to her husband’s sudden death.[17]
[16] Murran Investments ALR at 589 per Mansfield J; FCA at para.47 per Mansfield J.
[17] Murran Investments ALR at 590-591 per Mansfield J; FCA at para.51 per Mansfield J.
Moreover, in Murran Investments the Federal Court found that there was no particular injustice to the respondents if the admission was withdrawn.[18] In that case pleadings were not closed and there was no suggestion that the matter was anywhere near to going to hearing.[19]
[18] Murran Investments ALR at 590-591 per Mansfield J; FCA at para.51 per Mansfield J.
[19] Murran Investments ALR at 581-584 per Mansfield J; FCA at paras.3-20 per Mansfield J.
In Deangrove Pty Ltd (Receivers and Managers appointed) v Commonwealth Bank of Australia[20] it was sought, after three days of hearing, to withdraw an admission that a director had executed a guarantee of the company’s obligations under a bill discount facility provided by the respondent bank. The withdrawal arose because the director did not recognise the signature on the guarantee when it was put to him in cross-examination, and ultimately he denied that the signature purporting to be his on the guarantee was in fact his signature.[21]
[20] [2003] FCA 268 (“Deangrove”).
[21] Deangrove at paras. 3 and 5-19 per Sackville J.
In Deangrove the Federal Court comprehensively canvassed the principles relating to the withdrawal of an admission in the following paragraphs, which this Court, with respect, adopts:
29 The principles relating to the circumstances in which a party should be given leave to withdraw an admission were addressed by Rogers CJ Comm D in Coopers Brewery Ltd v Panfida Foods Ltd [1992] 26 NSWLR 738. In that case, admissions were made by the defendant's legal representatives after consent orders were made requiring the defendant either to admit certain matters or to serve an expert's report in support of a denial of those matters. Rogers CJ rejected (at 746) the approach taken in H Clark (Doncaster) Ltd v Wilkinson [1965] Ch 694, as the product of "another age and ... other circumstances". In Clark v Wilkinson, Lord Denning MR had said this (at 703):
"An admission made by counsel in the course of proceedings can be withdrawn unless the circumstances are such as to give rise to an estoppel. If the other party has acted to his prejudice on the faith of it, it may not be allowed to be withdrawn ... . But otherwise an admission can be withdrawn. For example, an admission is often made by error in a pleading. It can be withdrawn if the other party has not been prejudiced, or, indeed, if any prejudice can be cured by compensation in costs."
Rogers CJ, by contrast, said (at 750) that an admission made by counsel in the proceedings
“should not be permitted easily to be withdrawn so as to make the procedure [requiring a party, in certain circumstances, to make admissions] meaningless”.
On the other hand, his Honour recognised a countervailing policy, namely that parties should not be discouraged from making admissions out of fear that, once give, the admissions cannot be withdrawn.
30 Later cases have given weight to the observations made by Rogers CJ in Coopers Brewery v Panfida. In Ridolfi v Rigato Farms Pty Ltd [2000] 2 Qd R 455, for example, the Queensland Court of Appeal upheld the refusal of the trial judge to allow the defendant in a personal injuries case to withdraw admissions deemed to have been made by reason of a failure to dispute a notice to admit facts. de Jersey CJ, with whom McPherson JA and Williams J agreed, observed (at 459) that:
“There is no principle that admissions made, or deemed to have been made, may always be withdrawn `for the asking', subject to payment of costs. The discretion is broad and unfettered, as exemplified by [Coopers Brewery v Panfida]”.
Williams J noted that counsel had referred to the passage of Bowen LJ in Cropper v Smith. His Honour said (at 460):
“That statement, while made over 100 years ago, is still relevant, and it encapsulates a principle which a judge must always take into consideration in determining whether or not it is appropriate, for example, to allow a party to withdraw an admission. Essentially it is no more than a recognition that courts will, so far as possible, ensure that a party has a fair trial. But, for example, where the detriment or prejudiced is self-induced, the party may not be entitled to relief”.
Williams J went on to endorse the comment of Rogers CJ that the approach of Lord Denning in Clark v Wilkinson was the product of another age.
31 In Drabsch v Switzerland General Insurance Co Ltd, unreported, 16 October 1996, Supreme Court of New South Wales, Santow J in the context of an appeal from orders made on an application for leave to withdraw admissions in pleadings, summarised the relevant principles as follows:
"1. Where a party under no apparent disability makes a clear and distinct admission which is accepted by its opponent and acted upon, for reasons of policy and the due conduct of the business of the court, an application to withdraw the admission, especially at appeal, should not be freely granted ... .
2. The question is one for the reviewing judge to consider in the context of each particular appeal, with the general guidelines being that the person seeking on a review to withdraw a concession made should provide some good reason why the judge should disturb what was previously common ground or conceded ... .
3. Where a court is satisfied that admissions have been made after consideration and advice such as from the parties' expert and after full opportunity to consider its case and whether the admission should be made, admissions so made with deliberateness and formality would ordinarily not be permitted to be withdrawn ... .
4. It will usually be appropriate to grant leave to withdraw an admission where it is shown that the admission is contrary to the actual facts. Leave may also be appropriate where circumstances show that the admission was made inadvertently or without due consideration of material matters. Irrespective of whether the admission has or has not been formally made, leave may be refused if the other party has changed its position in reliance upon the admission ... .
5. Following Cohen v McWilliam & Anor [1995] 38 NSWLR 476, a court is not obliged to give decisive weight to court efficiency, such that a party who wishes to defend its claim is entitled to a hearing on the merits, with costs orders being available as a means of compensating the other party for any costs thereby unnecessarily incurred or not fairly visited on the other party”.
32 Some care must be taken in applying the principle stated in Coopers Brewery v Panfida. Rogers CJ clearly gave great weight to efficient case management and the importance of avoiding disruption to court lists. His Honour may also have been influenced by the fact that the admission was made in response to a consent order in the proceedings. Since Coopers Brewery v Panfida was decided, the High Court, in Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146, has reaffirmed the principle stated by Bowen LJ in Cropper v Smith as applied in Clough and Rogers v Frog. In that case, the majority (Dawson, Gaudron and McHugh JJ) observed (at 154) that
“Case management is not an end in itself. It is an important and useful aid for ensuring the prompt and efficient disposal of litigation. But it ought always to be borne in mind, even in changing times, that the ultimate aim of a court is the attainment of justice and no principle of case management can be allowed to supplant that aim.”
Later, their Honours said (at 155):
“Case management, involving as it does the efficiency of the procedures of the court, was in this case a relevant consideration. But it should not have been allowed to prevail over the injustice of shutting the applicants out from raising an arguable defence, thus precluding the determination of an issue between the parties.”
33 In Hanave Pty Ltd v LFOT Pty Ltd [1997] FCA 218, Moore J took account of the observations in Queensland v J L Holdings in granting leave to an applicant "at the concluding stages of...protracted litigation" to withdraw a concession made on its behalf by counsel. The concession concerned the scope of a representation pleaded in the statement of claim. His Honour granted leave for the applicant to adopt a broader construction of the pleadings, notwithstanding that an adjournment was apparently required in order to allow the respondents to adduce further evidence required by the expansion of the issues in the case.
34 It seems to me that, having regard to the reasoning in Queensland v J L Holdings, questions of case management (in the sense of efficient court administration and use of court time), although not irrelevant, should not play a decisive or paramount role in determining whether or not to grant leave to a party to withdraw an admission. I do not, however, read the High Court's decision as entitling a party to raise a fresh issue in litigation at any time of its choosing, regardless of the basis on which the litigation has been conducted or the stage the proceedings have reached. It must be remembered that in Queensland v J L Holdings, the application to amend the pleadings was made six months prior to the scheduled date of the trial and, according to the majority, the amendment raised no complex factual issues. The High Court was not concerned with an application in the course of a hearing to withdraw an admission made on a factual question within the knowledge of the party making the admission.
35 Consistent with what was said by Santow J in Drabsch v Switzerland Insurance, a party who makes a clear and distinct admission on a factual question, which is accepted and acted upon by the opponent, should not be permitted freely to withdraw that admission. Whether or not it is appropriate to grant leave will depend upon the particular circumstances of the case and an assessment of the interests of justice. The relevant circumstances include the nature of the admission, how it came to be made (for example, whether it was made deliberately or inadvertently), when and why the party seeks to withdraw the admission and the impact of any withdrawal on the other parties to the litigation.[22]
[22] Deangrove at paras.29-35 per Sackville J.

In refusing leave to withdraw the admission the Federal Court in Deangrove had regard to the following considerations:
a)that a grant of leave would open up fresh issues which would need to be determined at hearing;[23]
b)that an adjournment of the hearing (which had already run for three days) would be necessary;[24]
c)that it was not the first time that the proceedings had had to be adjourned or vacated, and that the “lamentable history of the litigation” was “virtually wholly attributable” to the party seeking to withdraw the admission;[25]
d)that another delay would work unfairness to the respondent bank, notwithstanding that it was well resourced and because of the prospect of further and possibly irrecoverable costs;[26]
e)the history of the litigation, and having regard to that history, that there “must come a point at which the interests of justice demand that a party to litigation take responsibility for his own conduct”;[27] and
f)that no satisfactory explanation of the making of the admission had been made, especially in circumstances where the director had sworn on three separate occasions that he had signed as guarantor.[28]
[23] Deangrove at paras.40-41 per Sackville J.
[24] Deangrove at para.42 per Sackville J.
[25] Deangrove at para.43 per Sackville J.
[26] Deangrove at para.44 per Sackville J.
[27] Deangrove at para.44 per Sackville J.
[28] Deangrove at para.45 per Sackville J.
The principles and considerations referred to above need to be applied in the context of the Federal Magistrates Act 1999 (Cth)[29] and the Federal Magistrates Court Rules 2001 (Cth),[30] which, as this Court has observed in Goodall v Nationwide News Pty Ltd:
[29] “FM Act”.
[30] “FMC Rules”.
Reading together the objects of the FM Act in s.3, the mode of operation in s.42, and having regard to the objects of the FMC Rules in r.1.03, it is apparent that the Court is intended to operate in a manner:
(a)     as informal as possible in the exercise of judicial power;
(b)     which is not protracted in its proceedings;
(c) which resolves proceedings justly, efficiently and economically;
(d)     uses streamlined procedures; and
(e)     avoids undue delay, expense and technicality,[31]
noting that:
a)the expressions of principle by the High Court concerning case management and the requirement to do justice between the parties set out in Queensland v JL Holdings Pty Ltd[32] pre-date the passage of the FM Act and FMC Rules and therefore it is possible that Parliament intended that this Court place more significance on questions of case management;
b)but also taking into consideration that the resolution of proceedings “justly, efficiently and economically” still puts the requirement to be just first and foremost.[33]
[31] [2007] FMCA 218 at para.21 per Lucev FM.
[32] (1997) 189 CLR 146 (“JL Holdings”).
[33] Hill End Gold Ltd v First Tiffany Resource Group Corporation [2008] NSWSC 866 at para.63 per Brereton J.

Evidence

The evidence in support of the withdrawal of the admission is contained in the affidavit of the respondents’ solicitor Patrick David Whight sworn on 29 March 2009.[34] Mr Whight’s Affidavit:
[34] “Mr Whight’s Affidavit”.
a)says he has taken a statement from the second respondent, Mr Ferguson, in which the second respondent will swear that he sought to set up a buying group and not a franchise under the relevant licence arrangements;[35]
[35] Mr Whight’s Affidavit, paras.3-4.
b)argues[36] that the Federal Court judgment in ACCC v Kyloe[37] requires a system or business plan imposed by the franchisor, and the assessment of whether there is a system or business plan imposed by the franchisor is to be made at a point in time before the relevant agreement becomes operative and by reference to the terms of the proposed agreement;[38]
[36] No objection was taken by the applicant.
[37] [2007] FCA 1522 (“Kyloe”).
[38] Kyloe at para.56 per Tracey J.
c)that the respondents would be prejudiced because:
i)they would not be able to articulate their true case at hearing and that the case would be decided on an artificial and erroneous basis because:
A as a matter of fact it would not reflect Mr Ferguson’s intentions; and
Bas a matter of law it is strongly arguable that a buying group was established and that the criteria in clause 4 of the Franchising Code Regulations for the establishment of a franchise agreement has not been met;[39]
[39] Mr Whight’s Affidavit, para.7.
ii)the judgment in Kyloe was delivered after the admission first appeared in the respondents defence in October 2006;[40]
[40] Mr Whight’s Affidavit, para.8.
iii)there was no material, analysis or advice on file which indicated that previous solicitors had turned their mind to the question of whether there was a franchise agreement, and it did not appear that any statement had been taken from Mr Ferguson or for the respondents;[41]
[41] Mr Whight’s Affidavit, paras.9-10.
iv)the further amended statement of claim does not set out an allegation of a business plan or system and nor did the original pleading, and therefore the issues does not appear to have been fairly made on the pleadings and the admission appears to have been made inadvertently;[42]
[42] Mr Whight’s Affidavit, para.11.
d)that the applicant would not be prejudiced because:
i)no further or additional evidence needs to be adduced as the relevant licence agreement is annexed to affidavits filed on behalf of the applicant;
ii)the applicant has not changed its position in reliance on the admission;
iii)there is no potential for any or any significant increase in pre-trial activity or cost;
iv)whether the licence is a franchise agreement is a matter of construction of the licence agreement by reference to the Franchising Code Regulations;[43]
e)it would be fair and equitable to allow the withdrawal of the admission at this stage because the applicant was given leave to file a further amended statement of claim by 17 October 2008, some 11 days before the hearing then scheduled to commence on 28 October 2008, and in fact only filed 7 days before hearing on 21 October 2008;[44] and
f)a fair hearing and resolution of the true controversy can only occur if the respondents are allowed to withdraw the admission.[45]
[43] Mr Whight’s Affidavit, para.12.
[44] Mr Whight’s Affidavit, para.13.
[45] Mr Whight’s Affidavit, para.14.

Consideration

The evidence put before the Court of:
a)any error or mistake by or behalf of the respondents in making the admission; and
b)whether there is a sensible explanation for the admission,
is scant.
Admittedly it now appears that Mr Ferguson will say that it was not the respondents’ intention to enter into a franchise agreement, but rather a buying group. However, the existence of a buying group is not of itself inconsistent with a franchise agreement, and the assertion that there was no intention to enter into a franchise agreement has to be considered against:
a)the franchise agreements having been admitted by the respondents for more than two years and five months;
b)the franchise agreements being re-admitted just short of twelve months ago;
c)the filing on 26 February 2009 of the applicant’s reply and amended defence which joined issue with the re-amended defence and cross-claim, “[s]ave insofar as the same consists of admissions”, but which elicited no response from the respondents;
d)the request to withdraw the admission was not made until just over two weeks before the third listed four day hearing of the matter, the two previous hearings have been adjourned at the instance and because of the default of the respondents; and
e)there being, understandably in view of the admissions, no evidence contrary to the admissions from the respondents.
Importantly, Mr Ferguson’s February 2008 Affidavit refers to the buying group, to the relevant licence agreements, to a cross-claim for damages arising out of the licence agreement and security for costs, but says nothing about the licence agreement not being a franchise agreement. Given the fact that the affidavit is detailed and the annexures lengthy it is difficult to believe that one of the litigious pillars of the applicant’s case, namely the franchise arrangements, was not considered when Mr Ferguson’s February 2008 Affidavit was drafted, either then or less than six weeks later when the admission was re-admitted in April 2008 in the re-amended defence and cross-claim.
Significantly, there is no evidence from Mr Ferguson that there was a mistake made at the time the admissions were made and then later repeated, or of:
a)his instructions to his then solicitor (Mr Beere in Margaret River); and
b)that his instructions were misunderstood or misapplied in making the admission and then re-admitting it.
It is also of significance that there is no evidence from Mr Beere, or any evidence of any attempt to obtain evidence from him.
Given:
a)the detail of Mr Ferguson’s February 2008 Affidavit; and
b)the absence of evidence of any error or mistake at that time,
the Court considers that the suggestion by the respondents that the franchise agreement issue was somehow overlooked is not made out. The absence of any evidence from Messrs Ferguson or Beere as to the events that occurred at the time the admission was made and re-made is significant because whilst it is contended that there was no material, analysis or advice on file which indicated that previous solicitors had turned their mind to the question of whether there was a franchise agreement, it cannot be discounted that the respondents admitted that there was a franchise agreement because that was the position they then adopted. The respondents’ assertion that there was no material analysis or advice on file is also somewhat weakened by its assertion that it did not appear that any statement had been taken from Mr Ferguson when, in fact, a detailed affidavit, Mr Ferguson’s February 2008 Affidavit, had been filed in the proceedings.
In the Court’s view it has not been demonstrated:
a)that an error or mistake by or on behalf of the party seeking to withdraw the admission has been demonstrated; or
b)that there is a sensible explanation for the making of the admission, and that explanation has been provided, based on evidence of a solid and substantial character.
The respondents argued that the matter of a franchise agreement and in particular the allegation of a business plan or system had never been fairly put in the pleadings and for that reason the admission appeared to have been made inadvertently. The latter contention is pure speculation, and having regard to the conclusions reached in the preceding paragraph cannot be sustained in any event. The former contention is simply not correct. At para.42 of the original statement of claim the applicant pleaded the existence of a franchise agreement. The sub-paras. of para.42 plead that the various requirements for the existence of a franchise agreement under the provisions of clause 4 of the Franchising Code Regulations have been met, and in particular at para.42.2 that the provisions of clause 4(1)(b) of the Franchising Code Regulations which relate to the existence of a franchisor imposed business system or marketing plan had been met. Those specific matters were admitted by the respondents. When the amended statement of claim was filed, perhaps understandably in view of the earlier admission, it was simply pleaded that there was a franchise agreement, and again that was admitted.
It is true that the judgment in Kyloe was delivered after the admission first appeared in the respondents defence in October 2006, but that fact is rendered neutral by the fact that the admission was made again in April 2008.
The fact that the respondents now want to withdraw the admission of a franchise agreement and to run what they now say is their true case open to them, which is that there is no franchise agreement, must be considered in the light of other factors including prejudice to the applicant.
The respondents submit that no further or additional evidence needs to be led to deal with the question of whether there is, or is not, a franchise agreement, and that the matter is simply one of construction of the relevant licence agreement, and consequently no or limited additional costs would be incurred. Counsel for the applicant does not concede this, and says that a dispute as to the existence of a franchise agreement and the circumstances surrounding the entry into the admitted franchise agreement is not a matter on which instructions have previously had to be sought in the context of a disputed assertion as to the existence of a franchise agreement. At the very least further instructions would have to be sought, and it may be that detailed evidence would have to be obtained. This is because, as the Court pointed out in argument, in the absence of an admission as to the franchise agreement, it might be necessary to obtain evidence of all the circumstances surrounding the entry into the alleged franchise agreement, because it might be open to the applicant to allege that the franchise agreement is partly oral or to be implied under the definition of “franchise agreement” in the Franchising Code Regulations.[46] If that has to be done it is inevitable that:
a)further expense will be incurred; and
b)there will have to be an adjournment to obtain the necessary instructions or evidence, which may then require amendments to pleadings and further affidavit material to be put on by the applicant, and be responded to by the respondents.
Thus it might be that the applicant has to change its position as to the nature of the franchise agreement if the admission is withdrawn. The respondents submitted that the applicant had suffered no prejudice because they had not changed their position in reliance on the admission, but withdrawal of the admission may force them to do so. Additional cost and further delay would be a likely consequence of the withdrawal of the admission.
[46] Franchising Code Regulations, Sch.2, cl.4(1).
Even if the matter required no further evidence and could be decided on the basis of the written materials there would inevitably be additional costs incurred, and in the context of a four day hearing which is just eight days away to raise a new issue in this way will entail significant additional work on the part of the parties to address the issue in a very short time frame whilst otherwise having to get ready for hearing. As the judgment in Kyloe demonstrates the task involved is not simple, and the time spent and costs likely to be incurred constitute significant prejudice at this late stage, and might indeed warrant an adjournment.
The prospect of a third adjournment within six months of a four day hearing is wholly inconsistent with the objects of the FM Act and the FMC Rules, and whilst case management is not an end in itself and must be weighed against the requirement to do justice, justice can be denied by being delayed, and the cost of justice cannot simply be allowed to mount by the grant of multiple adjournments of a multi-day hearing at the instance of the defaulting party. In that context the delay in the proceedings, both overall since their commencement and as a consequence of previous adjournments, and the further delay which would be likely if the admission were allowed to be withdrawn, do not, in the Court’s view, favour the withdrawal of the admission.
The respondents’ submission that it would be fair and equitable to allow the withdrawal of the admission at this stage because the applicant was given leave to file a further amended statement of claim by 17 October 2008, some 11 days before the hearing then scheduled to commence on 28 October 2008, and in fact only filed 7 days before hearing on 21 October 2008, is entirely misconceived. As pointed out above that delay by the applicant was a consequence of the respondents default in relation to discovery.[47]
[47] See para.15 above.
The Court has considered all of the relevant factors discussed above and has come to the view that:
a)the respondents have failed to establish any erroneous basis for the making of the admission and have not advanced any adequate explanation for the admission having been made in the first place; and
b)there is greater prejudice to the applicant than the respondents in allowing the admission to be withdrawn, particularly as to costs and delay, and that in all the circumstances (including the prior litigation history of the matter and the various defaults of the respondents since September 2008), that prejudice outweighs any entitlement the respondents might have to withdraw the admission, and consequently run the case on the basis that there is no franchise agreement.

Conclusion and Orders

That part of the amended application in a case which seeks to withdraw the admission by the respondents of a franchising agreement is dismissed.
The Court will hear the parties as to:
a)costs; and
b)consequential orders.

I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of Lucev FM

Associate: S. Gough

Date: 6 April 2009