Traderight (NSW) Pty Ltd v Bank of Queensland Ltd

[2015] NSWCA 94

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:	Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94
Hearing dates:	16, 17, 18 February 2015
Decision date:	14 April 2015
Before:	Bathurst CJ at [1]; Beazley P at [2], Barrett JA at [3]
Decision:	Appeal dismissed with costs
Catchwords:	TRADE AND COMMERCE – Trade Practices Act 1974 (Cth) and related legislation – consumer protection – misleading or deceptive conduct – negotiation and formation of franchise agreements under which franchisees operate branches as agents of a bank – statements made by the bank as to volumes of future business – whether these were statements as to what franchisees will likely achieve or statements regarding hypothetical possibility – silence – bank did not volunteer information regarding business volumes achieved by existing franchisees – whether maintaining of silence on that matter was misleading or deceptive conduct
Legislation Cited:	Fair Trading Act 1987 (NSW)Click here to enter text. Industrial Relations Act 1996 (NSW) Trade Practices Act 1974 (Cth)
Cases Cited:	Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 CPI Group Ltd v Stora Enso Australia Pty Ltd [2007] FCAFC 160 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2000] FCA 1572; 104 FCR 564 Mackman v Stengold Pty Ltd [1991] ATPR 41-105 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 Traderight (NSW) Pty Ltd v Bank of Queensland Ltd (No 17) [2014] NSWSC 55 Traderight (NSW) Pty Ltd v Bank of Queensland Ltd (No 18) [2014] NSWSC 733Click here to enter text.
Category:	Principal judgment
Parties:	Traderight (NSW) Pty Limited – First Appellant
Representation:	Counsel: M B J Lee SC/J C Conde - Appellants S Couper QC/J V Gooley - Respondent Solicitors:
File Number(s):	2014/140171
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Date of Decision: 13 February 2014 Before: Ball J File Number(s): 2006/258216

HEADNOTE

[This headnote is not to be read as part of the judgment]

In 2003, Bank of Queensland Ltd (“BOQ”) embarked upon a program of interstate expansion. Between August 2004 and April 2007, BOQ appointed a number of franchisees in New South Wales and enabled them to undertake banking operations as its agents through “owner managed branches” (or “OMBs”). Some of the OMBs were unsuccessful and their proprietors suffered losses that forced them to cease trading. Some unsuccessful proprietors brought proceedings against BOQ alleging misleading or deceptive conduct in the course of the negotiation and formation of the franchise agreements in contravention of Trade Practices Act 1974 (Cth) or Fair Trading Act 1987 (NSW). Ball J found that BOQ had not engaged in misleading or deceptive conduct and ordered that the unsuccessful franchisees pay BOQ’s costs. Ten franchisee groups appealed.

Two types of allegedly misleading or deceptive conduct were before the primary judge: conduct by way of the making of particular statements or representations; and conduct in the form of maintaining silence in circumstances where it was said to be misleading or deceptive not to speak. The representations allegedly made were referred to as “target statements” and “break-even statements”. The claim of misleading or deceptive conduct by silence concerned “pre-opening non-disclosure”.

The “target statements” were, in broad concept, statements to the general effect that a metropolitan franchisee would need to write $4 million, and a regional franchisee $3 million, in new loans on average per month to have a successful business and that a franchisee ought to be able to meet those targets. The “break-even statements” were statements to the general effect that if a franchisee wrote new loans to that level each month, there would be a break-even point of 8 to 12 months. The statements were allegedly made in the course introductory meetings at which Mr Allsopp, a BOQ employee, presented prospective franchisees with an “expression of interest” (“EOI”) letter, which he then went through with them. The EOI letter stated that the franchisee retained responsibility and liability for the success and viability of the branch and that BOQ could not give any assurances or make any predictions about matters like the costs, revenue or future profitability of your branch or the suitability of its location; also, because the franchisee would need to accept and manage these, the franchisee should think carefully before becoming an Owner Manager.

At the end of the meeting, Mr Allsopp suggested that the prospective franchisee prepare and submit a business plan along with a signed copy of the EOI letter if they wished to proceed with the franchise agreement.

If a prospective franchisee returned a signed copy of the EOI letter, he or she was invited to meet Ms Quinn, another BOQ employee, at one of a number of small cocktail evenings at which she would present on BOQ and the OMB model generally. If Mr Allsopp and Ms Quinn decided that BOQ should proceed with a particular a franchisee, that franchisee would then be sent an “approval letter” and bundle of documents that included a “franchise disclosure document”.

The financial disclosure document stated that franchisees were responsible for assessing their own financial resources and capabilities to deal with the requirements of the franchise business, making enquiries about the franchise and the business of franchise, getting independent legal, financial and business advice and preparing a business plan. There was also a statement that BOQ “encourages OMB agents to make inquiries with existing OMBs” and a warning that, because of geographical differences and the fact that some of the earlier appointments had been on different terms comparison might be “difficult or impractical”.

In dismissing the appeal with costs, the Court held,

In relation to the “target statements” and “break-even statements”:

1. That the primary judge correctly held that the statements made by Mr Allsopp, as established by his evidence, were not, in terms of s 51A of the Trade Practices Act (and s 41 of the Fair Trading Act), representations “with respect to any future matter”, being the actual financial performance of a particular OMB because:

(1)    Neither Mr Allsopp nor anyone else within BOQ had any ready means of assessing whether the circumstances in a prospective OMB would operate would bear any resemblance to the assumptions on which the modelling was based: [154];

(2)   It was not sensible or indeed possible for someone in Mr Allsopp’s position to speak meaningfully of what a particular OMB in a particular location, operated according to future decisions made by particular proprietors in a particular local environment who had formulated a particular business plan, could or would achieve in terms of volume of business over any particular period: [154];

(3)    Any statement made by Mr Allsopp was, at most and of its nature, an opinion to the effect that, if actual circumstances in a particular case precisely matched the Zillman assumptions, there was a statistically objective basis for a conclusion that particular financial consequences would likely follow: [149]; and,

(4) Commercially sophisticated persons such as the appellants should have appreciated Mr Allsopp’s statements as such: [154], [146].

2. Any statement to the effect that BOQ required a franchisee to generate a certain level of business cannot be taken as any form of representation by BOQ that particular OMB could or would achieve that particular level of business: [155]-[156].

3. Whether a representation is misleading or deceptive or calculated to mislead or deceive must be assessed objectively. Whether the person to whom a particular representation was made was misled or deceived by the representation is irrelevant. Only if monetary relief (or some other order) is sought by a plaintiff who alleges that a particular misrepresentation was made to him or her does that plaintiff need to establish a causal link between the impugned conduct and the loss that is claimed: [159]-[163].

Trade Practices Act 1974 (Cth) ss 51A, 52, 82 and 87; Fair Trading Act 1987 (NSW) ss 52, 68 and 72. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640, Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592, Henville v Walker [2001] HCA 52, 206 CLR 459 applied.

In relation to “pre-opening non-disclosure”:

1. Silence may amount to a misleading and deceptive conduct if the circumstances taken as a whole are such as to give rise to a reasonable expectation of disclosure of some relevant fact known to exist. The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive: [185]-[190].

Trade Practices Act 1974 (Cth) s 52; Fair Trading Act 1987 (NSW) s 42; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546, Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357, Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 applied.

2. In assessing the quality and implications of silence and the conduct of a person that consists of remaining silent, all aspects of the objectively ascertained context will arise for consideration. Shared knowledge and assumptions – engendered, for example, by a course of dealing or a particular commercial setting or practice – of the person who remains silent and the person by whom the silence is experienced will be relevant, as will the separate knowledge of the latter: [190].

Trade Practices Act 1974 (Cth) s 52; Fair Trading Act 1987 (NSW) s 42; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546, Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357, Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 applied.

3. It is no answer to a claim of misleading or deceptive conduct by silence to say that the person misled should have made his or her own enquiries and that, had they done so, it would have revealed the true position: [193].

CPI Group Ltd v Stora Enso Australia Pty Ltd [2007] FCAFC 160, Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 applied.

4. Section 42 of Trade Practices Act and s 52 of the Fair Trading Act does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence: [191]-[192].

Trade Practices Act 1974 (Cth) s 52; Fair Trading Act 1987 (NSW) s 42. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357, Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 applied.

5. In the circumstances, taken as a whole, there could have been no “reasonable expectation” on the part of prospective or recently signed-up franchisees that BOQ should take positive and unsolicited action to share with them information BOQ possessed about the financial performance and business levels achieved by existing franchisees: [213]. The relevant circumstances were as follows: see [212]:

(1)   BOQ had made it clear, both orally and in writing, that

(a)    it was for prospective OMBs to investigate the feasibility and viability of their own business proposal;

(b)    that BOQ could not give assurances or make predictions about revenue or profitability of prospective OMBs;

(c)   that prospective franchisees should talk to other existing franchisees; and,

(d)    that BOQ would facilitate introductions to other franchisees for that purpose.

(2)   Information received BOQ about the financial performance of existing franchisees was of a private or commercially sensitive nature so that, if it was to be disclosed by way of assistance to an intending new entrant, that disclosure should properly come from those existing franchisees.

(3)   Several prospective franchisees accepted the position presented by BOQ and made approaches to existing franchisees with a view to obtaining relevant information from them.

Judgment

1. BATHURST CJ: I agree with Barrett JA.

2. BEAZLEY P: I have had the advantage of reading in draft the detailed reasons of Barrett JA with which I agree. I agree with his Honour that the appeal be dismissed with costs.

3. BARRETT JA: Bank of Queensland Ltd (“BOQ”) was established in 1874 as a building society. It later became a bank and has for several decades carried on the business of banking in Australia, principally in Queensland. The business is, in part, conducted through branches (and otherwise) by employees in the conventional way. In addition, BOQ appoints “franchisees” and enables them to undertake banking operations as its agents through so-called “owner managed branches” (or “OMBs”). That method of conducting business was adopted in 2001 for Queensland and was later extended beyond that State.

4. In 2003, BOQ established internally an “interstate expansion team”. That group set about seeking expressions of interest from potential franchisees outside Queensland. Between relevantly August 2004 and April 2007, BOQ appointed a number of franchisees in New South Wales. Some of the franchise businesses were unsuccessful and their proprietors suffered losses that forced them to cease trading.

Proceedings brought between OMB franchisees and BOQ

5. Over a period of about four years to 2010, no fewer than fourteen separate proceedings were commenced in respect of franchise arrangements for OMBs in New South Wales. In most cases, a franchisee sued BOQ (and sometimes individual officers). In some cases, however, it was BOQ that sued a franchisee. Some actions were brought in the Supreme Court of Queensland, some in the Federal Court of Australia, some in the Industrial Relations Commission of New South Wales and the remainder in the Supreme Court of New South Wales. The proceedings commenced otherwise than in the Supreme Court of New South Wales were ultimately cross-vested to that court.

6. It will be necessary, in due course, to refer in some detail to the causes of action asserted by the franchisees. For the present, it is sufficient to note that the predominant allegations made by franchisees were that, in connection with the establishment of franchises, BOQ engaged in misleading or deceptive conduct or unconscionable conduct in contravention of the Trade Practices Act 1974 (Cth) or the Fair Trading Act 1987 (NSW) as in force at the relevant time; and that the franchisees thereby suffered loss or damage. Causes of action in tort (for negligent misstatement and other negligence) were also before the court, as were claims based on provisions of the Industrial Relations Act 1996 (NSW). In some of the proceedings, BOQ pursued debt claims against the franchisee and related claims against guarantors.

7. The proceedings were heard by Ball J over 101 hearing days between September 2012 and October 2013. His Honour announced his decision on 13 February 2014: Traderight (NSW) Pty Ltd v Bank of Queensland Ltd (No 17) [2014] NSWSC 55. He found that none of the franchisees had established an entitlement to relief as against BOQ and that, in some cases, BOQ was entitled to a money judgment against a franchisee (and, if applicable, a guarantor or guarantors). Orders reflecting that decision were made on 14 April 2014. After a subsequent hearing, there were orders that the unsuccessful franchisees pay BOQ’s costs: Traderight (NSW) Pty Ltd v Bank of Queensland Ltd (No 18) [2014] NSWSC 733.

Appeal by franchisees

8. By notice of appeal filed on 25 June 2014, the franchisee groups adversely affected by the orders of Ball J assert error correction of which requires the making of declarations that BOQ and other defendants engaged in conduct that was misleading or deceptive or likely mislead or deceive, contrary to s 52 of the Trade Practices Act or s 42 of the Fair Trading Act (as in force at the material time), by making certain statements or representations to franchisees and also by silence.

9. The franchisee groups by which the appeal has been instituted are made up of a total of 36 persons and companies. It is sufficient to refer (as the primary judge did) to separate OMB franchisees by the following abbreviations with the relevant branch locality for each shown, together with the names of the franchisee’s principals and the date of opening of the OMB:

Franchisee	Locality of Branch	Principals	Date Opened
Traderight NSW Pty Ltd (Traderight)	Castlereagh Street, Sydney	Bronwyn Smith, Geoffrey Versace	03/11/2004
Rossmick No 2 Pty Ltd (Rossmick No 2)	Hurstville	Ross Chapman, Luke Nolan, Michael Bradley	12/09/2005
Rossmick No 1 Pty Ltd (Rossmick No 1)	Maroubra Junction	Ross Chapman, Michael Bradley	19/09/2005
Jude Financial Services Pty Ltd (JFS)	Bathurst	Russell Gardner, Penelope Gardner	19/12/2005
Shamarbre Pty Ltd (Shamarbre)	Hornsby	Ronald Johnson	21/12/2005
Geraghty & Palmer (NSW) Pty Ltd (Geraghty & Palmer)	Rhodes	Shauna Geraghty, Barry Palmer	03/01/2006
SME Business Assist Pty Ltd (SME)	Bondi Junction	Scott McCoy	03/01/2006
Leokate Pty Ltd (Leokate)	Miranda	Stephen Sargent, Lauren Sargent	20/03/2006
Best Deal Pty Ltd (Best Deal)	Toronto	Jeffrey Jones	24/08/2006
LJH Group Pty Ltd (LJH)	Hurstville	(Jin Yu Yang) Yun Xu	10/03/2007
Southpole Financial Services Pty Ltd (Southpole)	Bankstown	Harunur Chowdhury, (Iftekhar Hassan) (Ikthedar Murad)	23/04/2007

10. Persons whose names are bracketed were investors who were not active in the operation of an OMB. Otherwise, the named persons were active in the respective businesses.

11. As relevant to the issues raised by the notice of appeal, findings of the primary judge were, in summary, that

(a)   BOQ had, in the course of negotiations and discussions with prospective franchisees, made certain statements as to the volume of business that a New South Wales franchise could be expected to generate; and

(b)   BOQ did not have reasonable grounds for those statements; but

(c)   there was no misleading or deceptive conduct by BOQ because:

(i) the statements related to what was possible in a hypothetical sense and therefore did not amount to representations with respect to future matters for the purposes of s 51A of the Trade Practices Act or s 41 of the Fair Trading Act; and

(ii)   the statements were not misleading as they were not relied on by the franchisees; and

(d) failure by BOQ to inform franchisees of unfavourable trading conditions being experienced by other franchisees already operating at the time of the opening of the relevant franchisee’s OMB did not constitute conduct prohibited by s 52 of the Trade Practices Act or s 42 of the Fair Trading Act.

12. References in these reasons to the Trade Practices Act and the Fair Trading Act are references to those Acts as they stood before the extensive amendments flowing from the adoption of the Australian Consumer Law in 2010. References to provisions of the two Acts are references to the provisions as in force at the time of relevant events.

13. Two types of allegedly misleading or deceptive conduct were before the primary judge for consideration: conduct by way of the making of particular statements or representations; and conduct in the form of maintaining silence in circumstances where it was said to be misleading or deceptive not to speak.

12. The notice of appeal, as filed, sets out 14 grounds of appeal. Of these, 11 are concerned with particular representations that the primary judge found had been made by officers or other representatives of BOQ to prospective franchisees. The representations fall into three groups described as “target statements” (grounds 1 to 5), “approval letter statements” (grounds 6 and 7) and “break-even statements” (grounds 8 to 11). The remaining grounds of appeal (grounds 12 to 14) are concerned with “pre-opening non-disclosure” and the proposition that BOQ contravened the statutory provisions by remaining silent.

13. The “target statements” were, in broad concept, statements made on behalf of BOQ to the respective franchisees to the general effect that, from BOQ’s modelling, a metropolitan franchisee would need to write $4 million, and a regional franchisee $3 million, in new loans per month to have a successful business; and that a franchisee ought to be able to meet those targets. The “approval letter statements”, broadly expressed, were statements in BOQ’s approval letters to successful franchise applicants that BOQ expected franchisees to be writing $4 million new loans per month. The “break-even statements” were statements allegedly made by BOQ to the general effect that, from BOQ’s modelling, if a metropolitan franchisee wrote $4 million and a regional franchisee $3 million in new loans per month, there would be a break-even point of 8 to 12 months.

14. I have given only a broad description of each type of relevant statement or representation since, naturally enough, each of the appellants, as a plaintiff, pleaded the use of particular words on particular occasions and much depends on evidence of what happened on particular occasions of oral communication. The appellants, in their notice of appeal, have framed grounds of appeal which, according to BOQ’s assessment, seek findings with respect to representations that do not correspond with the pleaded cases of the appellants. It will be necessary to return to this matter.

15. The grounds of appeal concerning “pre-opening non-disclosure” concentrate on the allegation of statutory contravention by silence and the circumstance that BOQ did not disclose to the relevant franchisees allegedly pertinent information it had about the financial performance of other New South Wales franchisees.

16. Not all grounds of appeal set out in the notice of appeal apply to all appellant franchisees and, in the course of submissions on the appeal, there was a further narrowing of scope. Nor, in the end, were all grounds of appeal pressed. The case ultimately advanced on appeal did not extend to the “approval letter statements”. The grounds of appeal pressed by the appellants were as follows:

Ground 1 (concerning “target statements” and applicable to each of Traderight, Rossmick, JFS, Geraghty & Palmer, SME, Best Deal, LJH and Southpole, that is, all appellants other than Shamarbre and Leokate): The primary judge:

“(a)   erred in holding that statements made on behalf of BOQ to each of the franchisees that:

(i)   from BOQ’s modelling, a metropolitan franchisee would need to write $4million, and a regional franchisee $3 million, in new loans per month to have a successful business; and

(ii)   a franchisee ought to be able to meet those targets,

(target statements) were statements about BOQ’s belief about ‘whwas possible’, rather than representations with respect to future matters.

(b)   should have held that in each of the Traderight, Rossmick, JFS, Geraghty & Palmer, SME, Best Deal, LJH and Southpole matters the target statements were representations with respect to future matters.”

Ground 2: Abandoned.

Ground 3: Abandoned.

Ground 4 (concerning “target statements” and applicable to Traderight, Rossmick, JFS, Shamarbre, Geraghty & Palmer, SME, Leokate, Best Deal, LJH and Southpole, that is, all appellants): The primary judge:

“(a) when considering whether there was contravening conduct for the purposes of s 52 of the Trade Practices Act 1974 (Cth) (TPA) AND S 42 of the Fair Trading Act 1987 (NSW) (FTA) – erred in considering reliance and finding that relevant franchisee parties had not relied on (cf. whether the alleged contravening conduct, objectively viewed, was capable of inducing error) the representations arising from the target statements and referred to in grounds 1(b), 2(b) and 3(b) …

(b) should only have considered reliance and made such findings when dealing with the question whether loss or damage had been caused ‘by’ any misleading or deceptive conduct, as alleged in relation to the target statements and for the purposes of s 82 of the TPA and s 68 of the FTA, with such loss or damage, as acknowledged by the Court ([2456]), to be determined on a case-by-case basis after the question of liability is resolved.”

Ground 5: (concerning “target statements” and applicable to all appellants):

“Because BOQ did not have reasonable grounds for the target statements ([2031])-([2041)], the primary judge:

(a) should have held that each of the representations arising from the target statements and referred to in rounds 1(b), 2(b) and 3(b) above constituted conduct that was misleading or deceptive or likely to mislead or deceive, contrary to s 52 of the TPA and s 42 of the FTA; and

(b) should have held that BOQ was liable to each franchisee party pursuant to s 82 of the TPA and s 68 of the FTA for all loss or damage caused by the misleading or deceptive conduct as alleged in relation to the target statements, with such loss or damage, as acknowledged by the Court ([2456]), to be determined on a case-by-case basis once the question of liability is resolved.”

Ground 6:    Not pressed.

Ground 7:    Not pressed.

Ground 8 (concerning “break-even statements” and applicable to Rossmick only): The primary judge:

“(a)   erred in finding in the Rossmick matter ([1352]) that no statement was made on behalf of BOQ about a break-even point of 8-12 months when the Court:

(i)   had earlier accepted ([1222]) that it was BOQ’s agent’s practice to refer to BOQ’s modelling and a break-even point of 8-12 months as contained in that modelling; and

(ii)   proceeded later to refer to and apply that agent’s practice in the Rossmick matter ([1353]); and

(b)   should have found in the Rossmick matter that a statement was made on behalf of BOQ about a break-Even point of 8-12 months in accordance with the practice of BOQ’s agent.”

Ground 9 (concerning “break-even statements” and applicable to all appellants): The primary judge:

“(a)   erred in holding that statements made on behalf of BOQ to each of the franchisees, that from BOQ’s modelling if a metropolitan franchisee wrote $4 million and a regional franchisee $3 million in new loans per month there would be a break-even point of 8-12 months (break-even statements), were statements about the effect of modelling done by BOQ concerning an hypothetical franchisee rather than representations with respect to future matters …; and

(b)   should have held that the break-even statements were representations with respect to future matters.”

Ground 10 (concerning “break-even statements” and applicable to all appellants): The primary judge:

“(a) when considering whether there was contravening conduct for the purposes of s 52 of the TPA and s 42 of the FTA – erred in considering reliance and finding that relevant franchisee parties had not relied on (cf. whether the alleged contravening conduct, objectively viewed, was capable of inducing error) the representations arising from the break-even statements …; and

(b) should only have considered reliance and made such findings when dealing with the question whether loss or damage had been caused ‘by’ any misleading or deceptive conduct, as alleged in relation to the break-even statements and for the purposes of s 82 of the TPA and s 68 of the FTA, with such loss or damage as acknowledged by the Court ([2456]), to be determined on a case-by-case basis after the question of liability is resolved.”

Ground 11 (concerning “break-even statements” and applicable to all appellants):

“Because BOQ did not have reasonable grounds for the break-even statements ([2055]), the primary judge:

(a) should have held that the representations arising from the break-even statements constituted conduct that was misleading or deceptive or likely to mislead or deceive, contrary to s 52 of the TPA and s 42 of the FTA; and

(b) should have held that BOQ was liable to each franchisee party pursuant to s 82 of the TPA and s 68 of the FTA for all loss or damage caused by the misleading or deceptive conduct as alleged in relation to the break-even statements, with such loss or damage, as acknowledged by the Court ([2456]), to be determined on a case-by-case basis after the question of liability is resolved.”

Ground 12 (concerning “pre-opening non-disclosure” and applicable to Rossmick, JFS, Shamarbre, Geraghty & Palmer, SME, Leokate, Best Deal, LJH and Southpole):

“In the context of:

(a)   BOQ’s target statements, approval letter statements (as applicable) and break-even statements (whether or not any of those statements constituted misleading or deceptive conduct); and

(b)   BOQ not having reasonable grounds for any of those statements ([2031] – [2041], ([2055]),

the primary judge erred in holding, in relation to information about the performance of other franchisees in NSW pre-opening, ‘that it was not misleading for [BOQ] not to have disclosed the relevant facts’ …”

Ground 13 (concerning “pre-opening non-disclosure” and applicable to the same appellants as Ground 12): The primary judge:

“(a) when considering whether there was contravening conduct for the purposes of s 52 of the TPA and s 42 of the FTA – erred in considering reliance and finding that relevant franchisee parties had not relied on (cf. whether the alleged contravening conduct, objectively viewed, was capable of inducing error) the pre-opening non-disclosure …; and

(b) should only have considered reliance and made such findings when dealing with the question whether loss or damage had been caused ‘by’ any misleading or deceptive conduct, as alleged in relation to the pre-opening non-disclosure and for the purposes of s 82 of the TPA and s 68 of the FTA, with such loss or damages, as acknowledged by the Court ([2456]), to be determined on a case-by-case basis after the question of liability is resolved.”

Ground 14 (concerning “pre-opening non-disclosure” and applicable to the same appellants as Grounds 12 and 13): The primary judge:

“(a) should have held that the pre-opening non-disclosure constituted conduct that was misleading or deceptive or likely to mislead or deceive, contrary to s 52 of the TPA and s 42 of the FTA; and

(b) should have held that BOQ was liable to each of Rossmick, JFS, Shamarbre, Geraghty & Palmer, SME, Leokate, Best Deal, LJH and Southpole pursuant to s 82 of the TPA and s 42 of the FTA for all loss or damage caused by the misleading or deceptive conduct, as alleged in relation to the pre-opening non-disclosure, with such loss or damage, as acknowledged by the Court ([2456]), to be determined on a case-by-case basis after the question of liability is resolved.”

Approach to the appeal

19. The appeal has two aspects. The first concerns the alleged “target statements” and “break-even statements”. The central issue there goes to the content of representations made by BOQ personnel to the representatives of prospective franchisees and the quality of those representations in terms of the relevant legislation. There is, in general, no dispute as to the general import of what was represented. Nor is it disputed that successful pursuit of any cause of action under the Trade Practices Act (or Fair Trading Act) in respect of a “target statement” or “break-even statement” depends on a finding, first, that the statement was, in terms of s 51A(1) of the Trade Practices Act (or s 41 of the Fair Trading Act), a “representation with respect to any future matter” and, second, that BOQ did not have “reasonable grounds for making the representation” with BOQ carrying the burden of proving that, in making the representation, it had such reasonable grounds. If the s 51A (or s 41) elements are established, the statement in question is deemed to be misleading and the making of the statement is therefore prohibited by s 52 (s 42).

20. The appellants’ challenge to the primary judge’s decision on the positive representations part of the case centres on his Honour’s view that the relevant statements were not representations “with respect to any future matter” but, rather, statements of hypothetical possibility. There is also a challenge to the primary judge’s approach concerning reliance and his view that, because prospective franchisees did not rely on the positive representations, those representations were not of the s 52 (or s 42) quality. The appellants say that the reliance question is irrelevant to characterisation of conduct and goes only to the question arising under s 82 (s 68) or s 87 (s 72) as to whether loss or damage was suffered “by” contravening conduct.

21. The second aspect of the appeal – the “pre-opening non-disclosure” aspect – involves an examination of BOQ’s knowledge about the financial performance of existing New South Wales franchisees at the time immediately before particular OMBs were opened by appellant franchisees and whether BOQ’s failure to communicate that knowledge to franchisees about to open branches was itself misleading or deceptive conduct within s 52 (s 42). There are again issues about the primary judge’s approach to the reliance issue.

22. The first aspect of the appeal turns substantially on evidence and findings about negotiations leading up to the making of each relevant franchise agreement, plus questions as to the characterisation of statements made. The second aspect involves examination of what BOQ knew at certain times and an assessment of the significance of its knowledge and its remaining silent while possessing the knowledge.

23. Against that general background, I turn to factual matters.

The Zillman modelling

24. Before embarking upon the program of expansion into New South Wales, BOQ conducted certain investigations. Market research was undertaken. In addition, Mr Zillman, a BOQ employee, prepared two financial models, one for a hypothetical metropolitan OMB and the other for a hypothetical regional OMB. There were two versions of each model – a “base case” and a “stretch” version.

25. Mr Zillman’s work relied in part on known factors (such as BOQ’s commission structure for OMBs) and in part on assumptions. The assumptions went to matters such as the average level of deposits and lending an OMB would achieve each month, the types of loans and deposits that would be achieved, the average length of loans and deposits and the costs of establishing and operating an OMB.

26. The initially assumed monthly loan level was $4.25 million for a metropolitan branch and $3 million for a regional branch. The $4.25 million figure was later adjusted to $4 million. Ms Quinn was a Group Executive of BOQ and the officer in charge of the interstate expansion project. She gave evidence of informal inquiries she had made of some of her banking contacts in New South Wales about the reliability of the initial $4.25 million figure for metropolitan business and the average deal size. Her inquiries were made principally of persons with whom she had worked during her previous employment by Westpac. Ms Quinn was of the opinion that the information she received supported the $4.25 million assumption. The informal inquiries were apparently the only basis for this. No similar work was undertaken in relation to regional branches and the primary judge found that it was “not clear” how OMB arrived at the $3 million figure.

27. Ms Quinn also gave evidence about inquiries made as to the costs of rent and fit-out.

28. Among Mr Zillman’s assumptions were assumptions as to the rate at which business would be generated. The model assumed that there would be a ramp-up period of 4 months, starting with a nil amount for month 1 and increasing to 100 per cent (that is $4.25 million) in month 4. Mr Zillman could not recall how the percentage of each monthly step was determined.

29. The primary judge dealt at some length with the question whether Mr Zillman’s work provided to BOQ reasonable grounds for believing that, if a metropolitan OMB wrote $4 million per month in loans, that OMB would break even within a reasonable time. Mr Zillman’s model was examined in some detail. His Honour said that, in order to provide reasonable grounds, the model did not have to be perfect. It needed to be soundly constructed; and there was no dispute that it was. In addition, it needed to make reasonable assumptions. What amounted to a reasonable assumption in the particular context was seen by the primary judge as depending on the nature of the assumption, its significance to the model and how the assumption was treated. Where the assumption had a major effect on the model, it was obviously necessary to conduct some investigation concerning the reasonableness of the assumption. His Honour concluded that, on that approach, the assumption concerning $4.25 million in new lending per month used in the model as an example was one in respect of which BOQ did not have reasonable grounds. Where the assumption related to minor matters, such as minor expenses, a reasonable approach, his Honour said, may have been to make an estimate of the expense without conducting any investigations or, if the expense was small, to discount it all together. In some cases, where it was difficult to determine the reasonableness of an assumption, it may have been appropriate to consider alternative assumptions to determine how sensitive the model was to the assumption in question.

30. The appellants criticised Mr Zillman’s model on various grounds. The primary judge found that there was substance in some of the criticisms but not in others. His overall conclusion was stated at [2055] in these terms:

“I have concluded that the Bank did not have reasonable grounds for making a number of the assumptions made in Mr Zillman’s model. It is unclear what effect those assumptions have on Mr Zillman’s model. However, under s 41 of the FTA, the Bank bears the onus of proof of establishing that it was entitled to rely on Mr Zillman’s model. Having regard to what I have said, I am not satisfied that it has discharged that onus.”

Mr Allsopp and his standard practice

31. The principal witness for BOQ was Mr Allsopp, Regional and Accreditation Manager NSW and ACT. He reported to Ms Quinn and was the main contact between BOQ and prospective franchisees. He had no specific recollection of any of the meetings at which he was alleged to have made relevant representations. As the primary judge said, that is not surprising since he dealt with some 1200 candidates over several years. Mr Allsopp did, however, give evidence of his general practice which involved, at an early stage, a meeting with a prospective franchisee.

32. Mr Allsopp’s evidence was that events at the initial meeting were typically as follows:

1.   The prospective franchisee signed a confidentiality agreement.

2.   Mr Allsopp handed the prospective franchisee a copy of the “expression of interest” (or “EOI”) letter addressed to the prospective franchisee. The EOI letter included a Schedule 1 setting out details of the commissions and fees payable to BOQ. Also handed over was a sheet headed “Owner Managed Branch Fees”.

3.   Discussion took place, including on the content of the EOI letter.

4.   Mr Allsopp completed “Checklist A”. This identified topics to be covered by Mr Allsopp. He generally did not disclose its content to the prospective franchisee. He used it for his own guidance.

5.   It was suggested by Mr Allsopp that the prospective franchisee prepare a business plan to be submitted to BOQ with information about the candidate and with a copy of the EOI letter signed by the candidate.

33. A prospective franchisee then set about preparing a business plan and cash flow using, for guidance, materials provided at the first meeting. Depending on circumstances, Mr Allsopp might have subsequent meetings with the interested persons.

34. If the prospective franchisee returned the signed copy EOI letter, he or she was invited to meet Ms Quinn. This happened mainly at small cocktail gatherings at which up to 12 candidates were present. At those functions, Ms Quinn gave a short presentation about BOQ and the OMB model and usually spoke only briefly to individuals.

35. It was Mr Allsopp who reviewed information provided by interested persons, including their business plans. Based on that information and the interview he had conducted, Mr Allsopp made a decision whether the candidature should be progressed. If his decision was positive, he recorded his approval of the applicant, the proposed site and other relevant matters. After completing his checklist, Mr Allsopp discussed it with Ms Quinn and, if she agreed with him, she counter-signed his recommendation.

36. BOQ’s legal department then prepared a letter to the prospective franchisee. This was referred to by the primary judge as an “Approval Letter”. Like the EOI, it was in a standard form, although accommodating particular matters arising from Mr Allsopp’s appraisal of the particular case. The prospective franchisee was required to sign an acknowledgment that he or she had received and understood the letter and to return a copy to BOQ.

37. At the next stage, Mr Allsopp completed a further checklist, “Checklist D”, and forwarded a package of documents to the legal department and the “OMB government department”. He also dealt with the credit department in relation to the applicant’s application for finance.

38. The legal department then prepared a number of documents, referred to by the primary judge (at [64]) as the “OMB Documents”, as follows:

“●    A standard form letter (the Appointment Letter) which described the documents enclosed, gave instructions for their completion and other information concerning the terms on which the Bank granted the franchise;

●    A franchise disclosure document required to be given in accordance with the Franchising Code of Conduct;

●    The OMB Agency Agreement, which was for an initial term of 5 years;

●    The Representations Deed;

●    Fixed and floating charges for each OMB company and guarantees and indemnities from each director;

●    Independent legal advice and financial advice forms to be completed by an independent lawyer and accountant respectively. The legal advice form required an independent lawyer to certify that he or she had explained the legal and practical nature and effect of each of the documents provided to the franchisee and the effect of default under those documents to the directors of the franchisee. The financial advice form required an independent accountant to certify that he or she had explained the accounting and financial nature and effect of each of the documents provided to the franchisee and the transactions under them.”

Particular findings about Mr Allsopp’s standard practice

39. The primary judge recorded several findings about Mr Allsopp’s standard practice. He referred, at [1088], to Mr Allsopp’s evidence that he began a first meeting interview by referring to the appointment of the first owner manager 20 years earlier and providing a brief summary of BOQ’s history in Queensland and its background. He asked the candidate for their personal details and then asked the candidate to sign a confidentiality agreement. According to him, the meeting was based around the EOI Letter and that he read out substantial sections of the letter to each candidate.

40. Mr Allsopp also gave evidence that he also referred to a checklist (“Checklist A”) to check that he had covered each topic on that list. He told the candidate how many OMBs were operating in Queensland and about the change from private agencies to OMBs. He also said that he stated that BOQ had been operating successfully in Queensland and that the OMB model had been successful; that BOQ was expanding into New South Wales and would like to be successful in that State as well. He said that he read out to candidates the responsibility for risk section of the EOI letter and that he explained that BOQ was “never going to be the best and never going to be the worst when it came to price”, and that the basis of the OMB model was that better service would be provided through OMBs than by competitor banks. This was because OMB franchiseess had a financial interest in the business and therefore an incentive to work hard.

41. The modelling undertaken by Mr Zillman played a part in Mr Allsopp’s communications with prospective franchisees. In part of his evidence about his general practice at the first meeting (referred to by the primary judge at [1093]), Mr Allsopp stated that he told candidates that the Bank’s modelling indicated that an OMB would need to write $4 million in lending and take $2 million in deposits a month from the first month to be successful if their expenses were reasonable. He said to them that he did not know what their expenses and location would be so that, as part of the process, they would need to produce a cash flow. He said that candidates often did not ask further questions about that subject matter. He could not recall why he used the figure of $4 million when the checklist referred to a figure of $4.25 million. He said that he distinctly recalled that, in the context discussing the necessary level of business an OMB would need to write, he talked about expenses and pointed out that an OMB in Pitt Street would have higher expenses compared to an OMB in, for example, Campbelltown. He said, however, that the difference in expenses between New South Wales and Queensland never came up, although the primary judge found that he “promptly retreated from that evidence” and said that, if it had come up, he would have said that expenses in New South Wales would be higher than those in Queensland because costs in New South Wales were higher. He said that he told candidates that they would need to work out their own expenses. Mr Allsopp said that he talked to candidates generally about their ability to write $4 million of new loans per month. He denied that he expressed any view on how long it would take to start writing $4 million in loans after the OMB opened.

42. His Honour stated (at [1141]) that he found “Mr Allsopp’s account of the approach he took to the first meeting he had with candidates to be plausible”. He continued (at [1142]):

“It would have been natural for him to follow a practice when interviewing candidates. The Bank had developed a set of procedures for interviewers to follow when interviewing candidates. Mr Allsopp gave evidence that he was given training in relation to those procedures and what he should and should not say, as would be expected. It is clear that Mr Allsopp did not follow the procedures developed by the Bank closely and his record keeping seems to have been poor. However, it was natural for Mr Allsopp to use the EOI Letter as a guide to what he should say. The letter set out much of the important information concerning the franchise. Although it may have been somewhat unusual for Mr Allsopp to read significant parts of the letter to applicants, there is no reason to doubt him when he says that he did. At least some of the OMB Parties, although by no means all, gave evidence that is consistent with the practice Mr Allsopp says he adopted. Mr Johnson accepts that Mr Allsopp gave him a copy of the EOI Letter and described Mr Allsopp as ‘very rehearsed’. Mr McCoy said that Mr Allsopp handed him a copy of the EOI Letter and used it as a guide for the meeting. Although Mr Jones does not suggest that Mr Allsopp gave him a copy of the EOI Letter at the beginning of the meeting, he said that Mr Allsopp went through what appeared to be a well rehearsed ’spiel’. Mr Versace said that when Ms Smith started asking Mr Allsopp questions, Mr Allsopp replied that he had a set speech which he wanted to go through and they could then ask questions. Mr Chapman said that at some stage Mr Allsopp said ‘[w]ell, let’s now go through the expression of interest letter to make sure I have covered everything’ and Mr Chapman’s notes on his copy of the letter are consistent with Mr Allsopp taking him through it.”

The EOI letter

43. The EOI letter was in a standard form into which the name and address of the particular prospective franchisee was written.

44. At the beginning, the EOI letter pointed out that the franchisee retained responsibility and liability for the success and viability of the branch; also:

“The Bank cannot give you any assurances or make any predictions about matters like the costs, revenue or future profitability of your branch or the suitability of its location.

Because you will need to accept and manage these important risks, you should think carefully before becoming an Owner Manager.” (emphasis in original)

45. A great number of subjects were then covered. Among the matters stated were the following:

• BOQ would not undertake any assessment of the suitability of the site chosen by the franchisee.

• OMBs would be required to meet cross selling targets set by BOQ. Branches would also be subject to minimum lending and deposit targets to ensure that BOQ maximised its business performance and profile in each location.

• Certain specific matters stated in the EOI letter should be considered in preparing a business plan; however, the list was not exhaustive and the prospective franchisee should speak to its own advisers about other relevant factors.

The franchise disclosure document

46. This document ran to more than 40 pages. Its purpose, as described on the front cover, was to convey “some of the information you need in order to make an informed decision about whether to enter into a franchise agreement with” BOQ. Other content of the front cover included the following:

“Take your time, read all of your documents carefully, talk to other franchisees and assess your own financial resources and capabilities to deal with the requirements of the franchised business.

You should make your own inquiries about the franchise and about the business of the franchise.

You should get independent legal, accounting and business advice before signing the franchise agreement.

It is often prudent to prepare a business plan and projections for profit and cashflow.

You should also consider educational courses, particularly if you have not operated a business before.”

47. The disclosure document contained the names, addresses and contact details of existing OMBs. There was a statement that BOQ “encourages OMB agents to make inquiries with existing OMBs” and a warning that, because of geographical differences and the fact that some of the earlier appointments had been on different terms, comparison might be “difficult or impractical”.

The approval letter

48. Successful applicants were sent an approval letter. It was in a fairly standard form but was altered to fit particular circumstances in some cases. The general nature of the relevant section of such letters may be understood by looking at four examples.

49. The form used in relation to Traderight included the following under a heading “Sales Targets”:

“All Bank of Queensland branches must meet cross sale targets as set down by the Bank annually. Performance in this area forms an integral part of the Bank's assessment of an Agent's success in the Bank's site. The Bank expects all Agents to participate in all Business Development Campaigns to a level that maximises the Bank's performance in that particular site.

The Bank sets all Branches (including all Owner - Managed Branches) a minimum lending draw down target to ensure that the Bank is maximising its representation in each particular location. Please note that the Bank will expect the new OMB at [location] to be writing $4 MILLION in lending draw downs on a monthly basis in the initial 12-month period.

Failing to meet the target will not in itself be a breach of the OMB Agency Agreement if the Bank determines that the OMB has used its best endeavours to promote the supply of products on behalf of the Bank. Obviously, the Owner Manager’s ability to meet targets will impact upon the Bank's decision to renew the term of the OMB Agency Agreement.”

50. In the case of Rossmick, the corresponding section was in these terms:

“The Bank sets all Branches (including all OMB®s) a minimum lending draw down target to ensure that the Bank is maximising its representation in each particular location. Please note that the Bank will expect the new OMB at Hurstville to be writing $4 MILLION in lending draw downs on a monthly basis in the initial 12-month period. A deposit growth objective will be set at $2 MILLION per month.

Failing to meet the target will not in itself be a breach of the OMB® Agency Agreement if the Bank determines that the OMB® has used its best endeavours to promote the supply of products on behalf of the Bank. Obviously, the Owner Manager's ability to meet targets will impact upon the Bank's decision to renew the term of the OMB® Agency Agreement.”

51. For JFS, the corresponding section read:

“All Bank of Queensland branches must meet cross sale targets as set down by the Bank annually. Performance in this area forms an integral part of the Bank's assessment of an Owner Manager's success in the Bank's site. The Bank expects all Owner Managers to participate in all Business Development Campaigns to a level that maximises the Bank's performance in that particular site.

The Bank sets all Branches (including all OMB®s) a minimum lending draw down target to ensure that the Bank is maximising its representation in each particular location. Please note that the Bank will expect the new OMB® at Bathurst to be writing $3 MILLION in lending draw downs on a monthly basis in the initial 12-month period. A deposit growth objective will be set at $1 MILLION per month.

Failing to meet the target will not in itself be a breach of the OMB® Agency Agreement if the Bank determines that the OMB' has used its best endeavours to promote the supply of products on behalf of the Bank. Obviously, the Owner Manager's ability to meet targets will impact upon the Bank's decision to renew the term of the OMB® Agency Agreement.”

52. In the case of Shamarbre, a slightly different form was used:

“All Bank of Queensland branches must meet cross sale targets as

set down by the Bank annually. Performance in this area forms an

integral part of the Bank’s assessment of an Owner Manager’s

success in the Bank’s site. The Bank expects all Owner Managers

to participate in all Business Development Campaigns to a level

that maximises the Bank’s performance in that particular site.

The Bank sets all Branches (including all OMB®s) a minimum

lending draw down target to ensure that the Bank is maximising its

representation in each particular location.

As at April 2005 the Bank’s sales targets are as follows:

●   Insurance – ten insurance policies per month;

●   Merchants – 12 new merchants per year;

●   Lending - $4 million worth of new lending per month; and;

●   Deposits - $2 million worth of new deposits per month.

Failing to meet the target will not in itself be a breach of the OMB®

Agency Agreement if the Bank determines that the OMB® has

used its best endeavours to promote the supply of products on

behalf of the Bank. Obviously, the Owner Manager’s ability to

meet the targets will impact upon the Bank’s decision to renew the

term of the OMB® Agency Agreement.”

Credit department submissions

53. The appellants also refer to the content of submissions made by prospective franchisees through Mr Allsopp to BOQ’s credit department in support of applications for loan funding to assist the establishment of the OMB and to provide working capital. Two such letters (one involving the Rossmick OMB at Maroubra and the other the Leokate OMB) contained the following statement:

“Success of the business related to the partnership being in a position to write around $4m lending per month. Both parties believe that this can be achieved …”

The OMB agency agreement and the representations deed

54. These were the documents by which negotiations were brought to a conclusion by appointment of the OMB franchisees as an agent of BOQ to conduct business for it.

55. The representations deed contained a provision as follows:

“5.    The Agent and the Directors acknowledge and agree that no representative of the Bank has made ANY statements to any director or other representative of the Agent to the effect that:

(a)    the Agent will achieve, or is likely to achieve, a certain minimum level of sales of Bank products in its operation of the Agency;

(b)    the Agent will receive, or is likely to receive, a particular minimum amount of total commission payments at any particular time;

(c)    the costs of establishment or operation of the Agency will not be more, or are not likely to be more, than a certain maximum amount;

(d)    the Agent will achieve, or is likely to achieve, a particular minimum level of profitability in operating the Agency;

(e)   the proposed location and site of the Agency will be, or are likely to be, a good or suitable location and site for operation of the Agency;

(f)   there is no financial or other risk for the Agent associated with becoming an agent of the Bank;

(g)    any business plan, budget or financial prediction provided to the Bank by the Agent is accurate, complete or likely to be fulfilled;

(h)    the Agency has or will have a certain value or ease of transfer or will attract a certain minimum transfer price in the future;

(i)    the Bank will provide advertising, marketing, promotion, training or any other assistance to a greater extent or of a greater value or quality than specified in the formal written agreements entered into between the Bank and the Agent for the operation of the Agency; or

(j)    the Bank will permit the Agent to operate the Agency other than in accordance with the formal written agreements entered into between the Bank and the Agent for the operation of the Agency.

6.    the Agent acknowledges and agrees that it has not relied on any statement described in clause 5 of this Deed in deciding to enter into an agreement with the Bank for the operation of the Agency.

7. the Agent acknowledges and agrees that it cannot take any action or make any claim under the Trade Practices Act 1974 (Cth) against the Bank in relation to misleading or deceptive conduct on the basis of any statement described in clause 5 of this Deed.

RELEASE OF THE BANK’S LIABILITY

8.    The Agent and the Directors agree to release the Bank and its representatives from any current or future liability arising out of any statement described in clause 5 of this Deed.

9.    Where the Agent is unable to release the Bank and its representatives from liability as required by clause 8, the Agent agrees to indemnify the Bank against any such liability.

…”

56. The OMB agency agreement contained a like clause:

“33.4    Operation of this document

(a)    Subject to any contrary provision contained in any Transaction Document, this Agreement contains the entire agreement between the Parties about its subject matter. Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by this Agreement and has no further effect.

(b)    …”

The positive representations case – “target statements” and “break-even statements”

57. It was virtually inevitable that the subject of likely or possible financial returns and performance should be discussed in the meeting or meetings Mr Allsopp had with each prospective franchisee. Likely or expected volumes of business were necessarily discussed. Each of the appellants, as a plaintiff, alleged particular representations by BOQ, through Mr Allsopp, on that matter. In each case, a representation referring to the writing of loans of an average of $4 million per month was alleged. It is uncontroversial that such a figure played a part in the Zillman modelling which was shared with potential franchisees. But the franchisees’ allegations concerning $4 million per month were by no means consistent or uniform.

57. The franchisees also alleged statements by Mr Allsopp as to the point at which a business established by them would “break-even” in the sense of moving from an unprofitable introductory phase to ongoing viability.

58. The representations allegedly made by Mr Allsopp as to financial performance are referred to as “target statements”. Those concerning transition from initial losses to profitable operation are referred to as “break-even statements”. There is a connection between the two in that expectations as to when “break-even” might be achieved were, of necessity, dependent on expectations about business volume and profitability.

59. It is necessary to identify the particular allegations advanced by franchisees concerning “target statements” and “break-even statements”.

Traderight

61. Traderight, in its fifth further amended statement of claim, referred to a second meeting between its principals (Ms Smith and Mr Versace) and Mr Allsopp and made the following allegations:-

●    “working capital of approximately $50,000 to $70,000 was needed for the first three (3) to six (6) months of operation until the branch achieved break even (the Working Capital Representation).”

●   “the OMB would break even within three (3) to six (6) months of opening.”

●   By the two immediately preceding allegations, BOQ “impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by or on behalf of Smith and Versace could and would achieve break even turnover within 3 to 6 months (Break Even Representation”.

●   “In order to reach break even turnover, the OMB Franchise would need to generate loan draw downs to the value of $4,000,000 per month.”

●   “If Smith and Versace did some business development activities, it would be relatively easy for them or they would not have any trouble achieving a turnover of $4 million per month within three (3) to six (6) months of opening the OMB Franchise, as they had an extensive client base from their own practices.”

●   “that in order to be approved, the BOQ required Business Plans to forecast estimated mortgages, both business and home loans, in the order of $4 million per month.”

●   “that writing $4million in lending draw downs per month was necessary to reach break even point.”

●   ”that it will be easy for the OMB Business to achieve break even point in the first three (3) to six (6) months of opening the OMB Business.”

●   “that once the OMB Business is writing more than $4 million per month in lending draw downs, the OMB Business will be making a profit.”

●   ”Smith and Versace, or an OMB conducted by or on behalf of Smith and Versace, would have no problems in reaching the break even target of $4 million in lending per month.”

62. BOQ denied each of those allegations.

Rossmick

63. In the case of Rossmick, the third further amended statement of claim alleged representations by Mr Allsopp at the initial meeting with the Rossmick principals, as follows:

●   “An OMB in NSW, or in metropolitan Sydney, would average or should do $4 million in new lending each month.”

●   “The break even point for a NSW OMB would be 6 to 8 months.”

●   “To progress the matter further, Chapman had to prepare a business plan including a detailed cash flow of the proposed OMB business and that the cash flows should show a monthly new lending amount of $4 million and that this level would be reached at approximately six months.”

●   “That the figure of $4 million per month in new lending would be the budget set by BOQ for any Sydney Metropolitan OMB and that any cash flow that did not forecast this level of new lending would not be approved by BOQ.”

●   By the immediately preceding representations, BOQ “impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by Chapman could and would achieve $4,000,000 loan turnover within 6 months (the ‘Turnover Achievable Representation’).”

●   In the approval letter of 23 July 2004 in respect of the Maroubra OMB, BOQ, through Mr Allsop, stated that “it was expected by the BOQ that the OMB at Maroubra Junction (the ‘OMB Maroubra Approval Letter’) would write $4 Million in lending drawdowns on a monthly basis in the initial 12-month period. The OMB Maroubra Approval Letter also included a number of items that required changing in the cash flow forecasts”.

●   By that statement, BOQ represented that the particular level of lending drawdown “was a reasonable expectation for the Maroubra OMB or that reasonable grounds existed for having such an expectation (the ‘Maroubra Approval Letter Representation’)”.

●   “Based on the performance of branches in Queensland and the size of average loans in Sydney compared to Queensland, an OMB in Metropolitan Sydney could expect to write a minimum of $4 million in new lending each month and that writing $4 million in new lending each month is easily achievable.”

●   “To progress the matter further, Chapman had to prepare a business plan including a detailed cash flow of the proposed OMB business and that the cash flows should show a monthly new lending amount of $4 million and that this level would be reached at approximately 6 months”

●   “That the figure of $4 million per month in new lending would be the budget set by BOQ for any Sydney Metropolitan OMB and that any cash flow that did not forecast this level of new lending would be approved by BOQ.”

64. Rossmick then alleged that, by the representations thus pleaded, BOQ:

“impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by Chapman could and would achieve $4,000,000 loan turnover within 6 months (the ‘Turnover Achievable Representation’).”

65. BOQ denied all these allegations (although, in relation to some, admitting that some of the words – excluding the $4 million reference – had been spoken).

JFS

66. In the case of JFS, the fourth further amended statement of claim alleged representations by Mr Allsopp to the JFS Principals (Mr and Mrs Gardner) as follows:

“●   “city branches of the BOQ in NSW were writing approximately $4 million in loans per month (as outlined in the ‘Expressions of Interest’ document).”

●   “that BOQ data and experience had revealed that a new branch took three (3) to four (4) months to reach $3 million of total per month for regional locations.”

●   “in relation to marketing, business development and the support that the BOQ represented that it was willing to provide to OMB’s, Allsopp represented that:

(i)   if Mr Gardner did some business development activities, such a level of lending ($3 million per month) would be easy to achieve;

…

(vi)   BOQ would provide ongoing marketing and advertising from a corporate level which would include brand and product marketing;

…

(ix)   the mail drop had been a successful way of launching a new branch.”

●   “given Mr Gardner’s business development experience and, in particular, having been the Branch Manager at CBA at Bathurst for 2 years, Mr Gardner would be able to, with a reasonable amount of local business development, reach a level of total loans of $3 million per month, particularly for both home and business lending . . .”

●   “that an OMB branch operated by Mr Gardner would easily be able to reach home and business lending of $3 million per month from around months 3 to 4 from opening.”

●   “that an OMB branch operated by Mr Gardner would be able to reach break even after around 8 months of operation.”

67. JFS further alleged, by reason of the statements thus alleged, BOQ had impliedly represented “that it did believe on reasonable grounds that an OMB branch could and would achieve $3,000,000 turnover within 3 to 6 months.

68. BOQ denied all JFS’s allegations.

Shamarbre

69. Shamarbre does not pursue any appeal in relation to target statements. It does, however, challenge the judge’s decision (unfavourable to it) in relation to break-even statements.

70. The particular representation was pleaded by Shamarbre as follows:

“During the First Meeting, Allsopp made representations to Johnson in trade or commerce by saying words to the following effect:

...

(i)   it would take an OMB operated by Johnson about 7 to 9 months to become profitable.”

71. BOQ denied this allegation.

Geraghty & Palmer

72. In the case of Geraghty & Palmer, the fifth further amended statement of claim alleged representation by Mr Allsop to Ms Geraghty and Mr Palmer at their first meeting, as follows:

●   “to succeed, the OMB franchise would have to write loans of $4,000,000 per month and this was the starting point.”

●   “to achieve the monthly lending target of $4 million, an OMB operated by Geraghty would need to draw down 10 loans per month, which was very easy to achieve given that the average size of a home loan in NSW was in the order of $400,000.”

●   “based on the performance of the OMBs in Queensland and on the volumes that the New South Wales OIMBs were already achieving, it would be very easy for an OMB operated by Geraghty to achieve a minimum of $4 million per month within 6 months of opening.”

●   “that the Bank expected branches in Sydney would be writing loans of $4,000,000 per month within six (6) months of opening the OMB.”

●   “the OMBs already operating in NSW were already achieving or exceeding $4 million in monthly lending.”

●   “the existing branches in New South Wales were having no trouble reaching the target of $4 million a month in lending and some branches were exceeding this target.”

●   “Geraghty should expect to break even after 6 months from the opening of her OMB.”

73. It was further alleged that, by those representations, BOQ impliedly represented “that it did believe on reasonable grounds that an OMB branch conducted by Geraghty and Palmer could and would achieve $4,000,000 loan turnover within 6 months”.

74. It was alleged that, by its approval letter of 12 July 2005, BOQ noted its expectation that the OMB would write $4 million in lending drawdowns on a monthly basis in the initial 12 months period and, by that part of the letter, represented that the writing of $4 million in lending drawdowns per month in the initial 12 months was a reasonable expectation for the OMB and that reasonable grounds existed for having such an expectation.

75. All the Geraghty & Palmer allegations were denied by BOQ.

SME

76. In the case of SME, the fourth further amended cross-claim alleged that, at their first meeting, Mr Allsopp made the following representations to Mr McCoy:

●   “having regard to the size of mortgages in Sydney, writing loans of $4,000,000 per month was easily achievable in the Sydney market and there was no doubt that McCoy had the capacity to do that.”

●   “the writing of loans of $4,000,000 per month would be sufficient for the intended OMB franchisee to pay expenses to operate the business, all borrowing costs, appropriate salaries for principals and to give a good return to the franchisee on the investment.”

●   “the Bank expected that branches in Sydney would be writing $4,000,000 in loans per month within 3 to 6 months of opening the branch, so that they would break even within 6 to 8 months.”

77. These were said to entail an implied representation by BOQ that “it did believe on reasonable grounds that an OMB branch conducted by McCoy could and would achieve break even turnover within 6 to 8 months”.

78. SME further alleged that BOQ, by its approval letter of 19 May 2005, noted an expectation that the OMB would write $4 million in loans and thereby represented that that was a reasonable expectation for the OMB and that reasonable grounds existed for the representation.

79. BOQ denied the making of these representations.

Leokate

80. Leokate does not appeal in respect of target statements. It does, however, challenge the judge’s decision on break-even statements.

81. In its fourth further amended statement of claim, Leokate alleged that, during the first and second meetings with the Leokate principals, Mr Allsopp made various representations, including the following:

“if Stephen and Lauren wrote on average loans of $4,000,000 per month from day 1, they would break even within 12 months of opening the OMB.”

Best Deal

82. In the case of Best Deal, the third further amended statement of claim alleged that, at the first meeting with that company’s principal, Mr Jones, representations were made as follows by Mr Allsopp:

●    “the BoQ’s minimum lending and deposit targets for all of its branches (both OMB and corporate branches) as at April 2005 (and operating as at 18 January 2006) was that:

(i)    $4 million in new lending would be written per month, which amount was achievable.”

●   “The BoQ’s minimum lending and deposit targets were easily achievable and realistic.”

●   “That having regard to the size of mortgages in New South Wales, writing loans of $4 million per month was achievable.”

●   “The writing of home loans of $4 million per month would be sufficient to cover all of the business’ overheads and start making a profit.”

●   “That usually the writing of $4 million in loans per month occurs at between six (6) to twelve (12) months of opening the branch with most OMB’s achieving this amount after around 6 months.”

●   “That given Jones’ background an OMB conducted by him would be able to reach the target of writing $4 million in loans per month, even sooner than within 6 months. Given the average loan size in NSW, an OMB conducted by Jones would have no trouble writing $4 million in loans per month.”

83. Best Deal also pleaded:

●   “By the statement as to the expectation of writing $4 million in lending draw downs on a monthly basis, the BoQ represented in trade or commerce to Jones that it was a reasonable expectation for Jones’ OMB or that reasonable grounds existed for having such an expectation.”

●   “The Bank impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by Jones could and would achieve $4 million loan turnover within 6 months.”

84. BOQ denied these allegations.

LJH

85. In the case of LJH, it was alleged in the fourth further amended statement of claim that, at the initial meeting between Mr Allsopp and Mr Xu, the principal of LJH, Mr Allsopp made the following representations:

●    “the BoQ’s minimum lending and deposit targets for all of its branches (both OMB and corporate branches) was that:

(i)    $4 million in new lending would be written per month, which amount was achievable.”

●   “that both the North Parramatta and Penrith OMBs were performing exceptionally well. If Xu worked hard and wrote $4 million lending per month, he could be like those branches and make a profit.”

●   “that because New South Wales loan sizes were bigger than in Queensland, with the average loan size in New South Wales of $300,000 to $400,000, to achieve the target of $4 million lending per month Xu would need to write 10 to 12 home loans per month.”

●   “that if Xu worked hard $4 million in lending per month would be easily achievable.”

●   “that the Bank expected that branches in Sydney would be writing $4 million in loans per month within 4 to 5 months of opening the branch, so that they would be making a profit after 4 to 5 months.”

86. It was further alleged that by the statement as to the expectation of writing $4 million in lending draw downs on a monthly basis, BOQ “represented in trade or commerce to Xu that it was a reasonable expectation for Xu’s OMB or that reasonable grounds existed for having such an expectation”.

87. There was also an allegation that, by reason of the specific representations, BOQ “impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by Xu could and would achieve $4,000,000 turnover within 4 to 5 months”.

Southpole

88. In the case of Southpole, the third further amended statement of claim alleged that at meetings attended by Southpole’s principal Mr Chowdhury, representations as follows were made by Mr Allsopp:

●   “that to be successful, the OMB franchise needed to write loans of $4 million per month. That target was achievable if he worked hard.”

●   “that Chowdhury could expect his OMB to achieve the lending target of $4 million per month within 6 months of opening if he worked hard”.

●   “that Chowdhury would initially require about $100,000 as working capital. Within 6 months of operations, if he worked hard, the branch would break even and would not require any more working capital. By that time, the branch would have enough of a portfolio to do $4 million or more every month thereafter so that it would cover its costs and be successful. He should be able to break even within 6 months.”

89. It was further alleged that, by those representations, BOQ “impliedly represented that it did believe on reasonable grounds that an OMB branch conducted by Chowdhury could and would achieve $4,000,000 turnover within 6 months”.

90. BOQ denied making the representations.

The positive representatons case – findings of the primary judge

91. The positive representations on which the appellants rely (as to both “target” and “break-even”) were oral representations said to have been made by BOQ through Mr Allsopp at meetings with the principals of prospective franchisees. The primary judge concluded that those of the principals who gave evidence were not credible witnesses and that their evidence should not be accepted except to the extent that it was corroborated.

92. The several principals recorded their recollections in affidavits. The primary judge referred to the possibility that, with the passage of time and after discussion with the principals of other plaintiff franchisees, witnesses may have come to embrace versions of relevant events that differed from the events that actually happened. His Honour did not thereby intend any criticism. He did no more than draw attention to the susceptibility of human memory to subsequent suggestion referred to by McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315. At an early stage, therefore, the judge directed that the bulk of each witness’s evidence about oral statements be given orally. His Honour said in relation to that direction (at [49]):

“Although that went some way in addressing the suggestion that each witness’s evidence did not represent his or her independent recollection of events, it was far from a complete solution, since it was evident that each witness had gone to considerable effort (and with mixed success) to remember what was in their affidavits – something that a number of the witnesses conceded in cross-examination they had done.”

93. These observations were made before the judge embarked upon his consideration of each witness’s evidence. Particular assessments were then made in relation to the several witnesses. Thereafter, at [1148], the judge recorded a general finding that he did not accept the evidence given by the OMB parties concerning the representations allegedly made to them. Nor did his Honour accept that they relied on many of those representations. He continued (also at [1148]):

“I am not satisfied that the OMB Parties have established that the Bank engaged in misleading or deceptive conduct. One reason I have reached that conclusion is that to a large extent I do not accept the evidence given by the OMB Parties concerning the representations alleged to have been made to them. Nor do I accept that they relied on many of those representations. The reasons for that vary from witness to witness; and it will be necessary to explain those reasons when dealing with the individual cases. However, my conclusions also depend on general considerations and it is desirable to say something about those before considering the specific representations that are alleged to have been made.”

94. The primary judge then referred to context, noting that, in many cases, the relevant representations were said to have been made by Mr Allsopp at the initial meeting. The purpose of that meeting was for Mr Allsopp to gather information as an initial part of an assessment process concerning candidates’ suitability.

95. Another purpose of the meeting was to introduce the OMB concept to the applicants and to see whether they were interested. The appellants submitted before the primary judge that Mr Allsopp was likely to have been persuasive at such meetings because, as Mr Allsopp knew, BOQ had an aggressive target for its interstate expansion and he was himself paid a bonus for signing up franchisees. In the judge’s opinion, however, the appellants exaggerated the significance of those considerations. He did not accept that a desire to proceed with the interstate expansion as quickly as possible caused Mr Allsopp to say things that he did not believe at the time to be true. There was evidence that Mr Allsopp had received a modest bonus in a few cases. In the judge’s view, the prospects of receiving bonuses could not have weighed heavily on Mr Allsopp’s mind, added to which Mr Allsopp did not strike his Honour as someone who would deliberately mislead those who applied to become franchisees. Evidence about Mr Chapman’s plans for Hurstville and BOQ’s reservations about them was referred to by the judge as an indicator that BOQ did not pursue a plan of aggressive expansion.

166. The primary judge began with an assumption that the Rossmick plaintiffs had established the matters particularised in this part of their case. Even on that assumption, in his Honour’s view, there was a question whether BOQ knew the pleaded facts which, he said, were “expressed at a high level of generality and involve assertions which contain a degree of judgment or carry with them connotations which, to some extent at least, involve something close to an expression of an opinion”. He gave an example. As at the start of August 2005 there were 13 OMBs open in New South Wales and nine of those had been open for more than six months. The number of suburban branches was smaller. His Honour wondered whether it could be said that the great majority of OMBs in the State had never achieved $4 million in new lending settlements per month where one out of 13 did so and when only nine OMBs had been open for more than 6 months; and whether “never” was a fair description of the position when the longest any branch had been open was 12 months.

167. The appellants regard these observations as “remarkable”. What the judge was saying in a general way, in my view, is that, because only a very short history of New South Wales operations was available, the characterisation that the pleading sought to place on events was, at best, questionable. Since no branch had been open for more than 12 months and nine of 13 (which included non-suburban branches) had been open for more than six months – and, therefore, four had been open for six months or less – there was not a great deal of established performance against which comparisons could usefully be made. There is, to my mind, substance in that reservation.

168. The judge went on to say that the matters pleaded by Rossmick were said by it to have been known to BOQ from selected facts which derived largely from financial information collated by BOQ itself. His Honour noted, however, that there was no evidence that BOQ actually performed the calculations from which the particularised facts were derived. He accepted that there must have come a time when it was apparent to BOQ that there was a serious problem with its interstate expansion, so that BOQ then had information that would be of interest to potential applicants concerning performance of other branches. But he considered it “difficult to say that that point had been reached at the time” the two Rossmick OMBs were opened.

169. The primary judge did not express any concluded view on these matters because he thought that Rossmick’s non-disclosure case failed for the simple reason that it was not misleading for BOQ not to have disclosed the relevant facts. His Honour’s reasoning was as follows (at [1438] – [1441]):

“[I]t was not misleading for the Bank not to have disclosed the relevant facts. The OMB Parties say that it was misleading because they had an expectation of disclosure. That expectation is said to have had two principal sources. First, they say that they had an expectation that the Bank would correct any misleading statement the Bank had made. However, put like that, the claim based on non-disclosure adds nothing to the claim based on the representations the Bank is alleged to have made. Either those representations, having regard to the context in which they were made, were misleading or they were not. If they were, it adds nothing to say that the Bank also engaged in misleading conduct by failing to correct the otherwise misleading impression created by the representation. In some circumstances, it is possible that a representation is not misleading at the time that it was made, but becomes misleading as a result of changed circumstances and there may be a question whether in those circumstances it is misleading not to draw the representee’s attention to the change in circumstances. But none of the representations on which the Rossmick Parties rely fall into that category.

The second basis on which it is said that the OMB Parties, including the Rossmick Parties, had an expectation of disclosure is that the information was important to their respective decisions to enter into the franchises. In addition, it is said that there was a relationship of candour between the parties characterised by a requirement that candidates sign a confidentiality deed and a requirement that the candidates disclose a great deal of information about themselves and their proposed franchise to the Bank.

In my opinion, that submission mischaracterises the relationship between the parties. It is difficult to see what relevance the confidentiality deed has to the characterisation of that relationship. The relationship was spelt out by the EOI Letter. It was a commercial franchise. Applicants were required to conduct their own investigation of the opportunity and to provide the Bank with information to permit the Bank to make an assessment of whether it thought the applicants were appropriate. The applicants were encouraged to make the enquiries they thought were appropriate including enquiries of other franchisees. The Bank facilitated that process. In my opinion, in those circumstances, the applicants could have had no expectation of disclosure particularly disclosure of general information about the performance of all franchises irrespective of their relevance to the circumstances of the particular applicant and what that applicant proposed. Mr Chapman says that he asked if there was any financial information Mr Allsopp could give him and he says that Mr Allsopp replied that there was not because of privacy concerns, but that Mr Chapman could speak to any existing Owner Managers about their financial performance and that he would arrange meetings for Mr Chapman for any Owner Managers he wished to speak to. How Mr Chapman could have had an expectation of disclosure in those circumstances is not apparent.

The OMB Parties also suggest that they had an expectation of disclosure because of the substantial costs of setting up an OMB and because the Bank emphasised the exclusivity of the arrangement – that it only wanted the best people as Owner Managers. Why, however, either of those matters gave rise to an expectation of disclosure in the circumstances I have described is not clear.”

172. (Mr Chapman was one of the members of the group that applied for the Maroubra franchise ultimately awarded to Rossmick 2.)

173. His Honour thus enunciated two conclusions. The first is that, to the extent that the case of contravention by silence was put on the basis that the plaintiffs were entitled to expect that positive but misleading or deceptive representations previously made would be corrected, the contravention so asserted was no more than a re-casting of the alleged contravention consisting of the making of the positive representations themselves. This is consistent with the analysis in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 at [23]. It was there pointed out that “reasonable expectation” analysis is unnecessary where the undisclosed fact is the falsity of a representation. That falsity itself is sufficient to found the claim of statutory misconduct. Secondly, the primary judge held that circumstances were not such as to give rise to an expectation that BOQ should, as to the matters said by the Rossmick plaintiffs to be material, have actively volunteered information to those plaintiffs rather then maintaining the silence that it in fact maintained. The silence was therefore not conduct prohibited by s 52 (s 42).

JFS

174. The JFS branch opened on 19 December 2005. The pre-opening non-disclosure allegation in that case was substantially the same as in the Rossmick case, except that, since the branch was a regional branch the relevant average monthly lending figure was $3 million. The judge held (at [1510]) that the pre-opening non-disclosure claim should fail for the same reason as in the Rossmick case.

Shamarbre

175. The Shamarbre OMB opened on 21 December 2005. The pre-opening non-disclosure case and the judge’s treatment of it (at [1596]) were the same as in relation to Rossmick and JFS.

Geraghty & Palmer

176. The Geraghty & Palmer branch opened on 3 January 2006. The primary judge noted that the pre-opening non-disclosure allegation was the same as in the other proceedings but with some additional particulars said to have been known to BOQ in January 2006. His Honour recorded (at [1654]) a finding that BOQ “knew in January 2006 that most branches were not achieving budget for new lending”. Beyond that, he regarded the case as governed by the considerations he had already identified.

SME

177. The SME branch also opened on 3 January 2006. The primary judge (at [1732]) saw that case as governed by the same considerations as Geraghty & Palmer.

Leokate

178. Leokate’s branch was opened on 20 March 2006. The judge found (at [1802]) that, by that time, BOQ “knew that a substantial number of branches were not performing as expected” but, for the reasons he had given in relation to other cases, did not accept that BOQ was under an obligation to disclose that fact.

Best Deal

179. The Best Deal branch was opened on 24 August 2006. By that time, the judge said (at [1871]), “BOQ was aware that there was a significant problem with its expansion into New South Wales” but it did not follow that that meant that the Bank engaged in misleading and deceptive conduct by failing to disclose to Mr Jones (or Best Deal) the facts that it pleaded were not disclosed.

LJH

180. The LJH branch opened on 10 March 2007. The state of BOQ’s knowledge at that point was described by the primary judge in the terms he had used for Best Deal. His conclusion on the substantive question was also similarly expressed (at [1926]).

Southpole

181. Southpole’s branch opened on 23 April 2007. The primary judge said (at [2005]) that the pre-opening non-disclosure case was pleaded in the same way as in the other matter and that the same result applied.

Pre-opening non-disclosure – submissions on appeal

182. The appellants say that, in the context of the whole of the representations made by BOQ to prospective franchisees, the primary judge should have found that it was misleading for BOQ not to volunteer to each franchisee, before the opening of its OMB, the information BOQ had about the financial performance of existing OMBs in New South Wales. The appellants emphasise that this submission does not presuppose or depend on a conclusion that the target statements and break-even statements were themselves misleading. The point is that, in a context where those and other statements (even if only statements of what was hypothetically possible) had been made and possibilities as to levels of performance had been implanted in the minds of prospective franchisees, there arose an expectation that BOQ would communicate information coming into its possession which called into question the validity of the possibilities.

183. BOQ’s response is that, when other elements of context are taken into account, no such expectation could reasonably have been entertained. BOQ points to a finding, in relation to Rossmick, that Mr Allsopp expressly said that no financial information about other OMBs could be given to the appellants. That position was made clear by the franchise disclosure document that each prospective franchisee received before entering into its agency agreement. The disclosure statement said, in unambiguous terms, in clause 17:

“BOQ does not provide earnings information about OMB agents and branches.”

184. Also, BOQ points to the primary judge’s finding that prospective franchisees were encouraged to make inquiries of existing franchisees and BOQ facilitated those inquiries by providing names and contact details so that a prospective franchisee could, if it wished, seek discussions with existing franchisees.

Pre-opening non-disclosure - principles

185. The legal principles applicable to this part of the appeal are reasonably clear. A useful starting point is the decision of the Full Federal Court in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546, a case concerningthe sale and purchase of a restaurant business. At all material times, patrons at the restaurant premises were seen to occupy 120 dining chairs placed at 39 tables and eight stools placed at a bar. Before entering into the contract, the purchaser observed the business operating in that way. According to the relevant licence held by the proprietor, however, operations were restricted to a maximum of 84 diners at 26 tables and seating at the bar was not permitted. The vendor did not inform the purchaser of the limitations imposed by the licence. After learning of those limitations following completion, the purchaser alleged misleading or deceptive conduct of the vendor in the form of its failure to make the true position known to the purchaser.

186. A finding crucial to the conclusion of the Full Federal Court that the vendor had, by its silence, contravened s 52 of the Trade Practices Act was stated by Lockhart J as follows (at 557):

“In the present case the vendor sold a business knowing that it was subject to serious limitations upon its lawful seating capacity, limitations imposed by both the licensing authorities and the local council which vitally affected the business, its goodwill, takings and profitability and knowing that in fact the restaurant was being conducted contrary to law with a substantial element of overseating.”

187. Those circumstances were regarded as giving rise to “a duty on the part of Henjo as vendor to reveal the true position to Collins Marrickville, the potential purchaser, before any contract was signed”, and it was “no answer” that the purchaser should have relied on its own inquiries.

188. Reference should also be made to Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (above). In that case, a prospective borrower retained a broker to find loan finance for it. The broker located a lender and the loan was made. When the borrower defaulted and the lender suffered loss, the lender sought redress against the broker and, in so doing, relied on the Trade Practices Act in two alternative ways. Under one alternative, the lender maintained that the broker should have informed it that the insurance policy for which the funding was sought was of a particular type having what was, in the commercial context, an unattractive feature (that is, that it was non-cancellable), being a feature of which the lender was unaware.

189. In advancing the alternative case based on failure to inform, the financier argued that, in the whole of the circumstances, it had a “reasonable expectation” that, if the policy was non-cancellable, the broker would alert it to that fact. The “reasonable expectation” test emerges from cases such as Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (above), Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 and Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2000] FCA 1572; 104 FCR 564. As those and other authorities make clear, silence is itself a circumstance that must be assessed like any other and, unless the circumstances as a whole are such as to give rise to a reasonable expectation of disclosure of some relevant fact known to exist, there is no basis on which silence of itself can warrant an inference that the fact does not exist. As French CJ and Kiefel pointed out in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (at [19]):

“The language of reasonable expectation is not statutory. It indicates an approach which can be taken to the characterisation, for the purposes of s 52, of conduct consisting of, or including, non-disclosure of information. That approach may differ in its application according to whether the conduct is said to be misleading or deceptive to members of the public, or whether it arises between entities in commercial negotiations …”

190. In assessing the quality and implications of silence and the conduct of a person that consists of remaining silent, all aspects of the objectively ascertained context will arise for consideration. Shared knowledge and assumptions – engendered, for example, by a course of dealing or a particular commercial setting or practice – of the person who remains silent and the person by whom the silence is experienced will be relevant, as will the separate knowledge of the latter.

191. It was pointed out by French CJ and Kiefel J (at [21] – [22]) that s 52 does not strike at “the traditional secretiveness and obliquity of the bargaining process” and, in general, “does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party”. Even more so, their Honours said (at [22]), the section does not impose on a party “an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence”. In the result, all members of the High Court were of the opinion that, having regard to all the circumstances of the transaction, the financier could not have had a reasonable expectation that the broker would alert it to the particular quality of the insurance.

192. A summary of relevant principles – extracted largely from Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd – appears in the following passage in the judgment of Sackville AJA in Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 at [209] (citations omitted):

“(iii)    The question in a case of alleged misleading or deceptive conduct as a result of non-disclosure is whether in the light of all relevant circumstances, there has been conduct which is misleading or deceptive . . .While the circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined, unless they give rise to a reasonable expectation that if some relevant fact exists it will be disclosed, mere silence will not support the inference that the fact does exist .

(iv)     In commercial dealings between individual entities, the characterisation of conduct must be undertaken by reference to circumstances and context. The relevant circumstances include the knowledge of the person who claims to have been misled and any common assumptions or practices established between the parties or in the particular activity or business in which they are engaged.

(v)    The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive. The judgment as to whether there is such a reasonable expectation is objective.

(vi)    The invocation of a reasonable expectation that if a fact exists it will be disclosed, directs attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs, or high moral expectations that exceed the requirements of the general law or of the prohibition imposed by [s 42 of the Fair Trading Act].

(vi)     In general, [s 42 of the Fair Trading Act] does not require a party to commercial negotiations to volunteer information which will assist the decision-making of the other party. A fortiori, s 42 does not require a party to volunteer information in order to avoid the careless disregard of its own interests of a party of equal bargaining power and competence.”

193. It may be accepted that, as was pointed out in CPI Group Ltd v Stora Enso Australia Pty Ltd [2007] FCAFC 160 (at [68](2)), it is no answer to a claim of misleading or deceptive conduct by silence to say that the person misled should have made his or her own enquiries and that, had they done so, it would have revealed the true position.

194. Against that background, it is necessary to refer to certain factual matters.

Pre-opening non-disclosure – facts

195. In relation to Mr Chapman (Rossmick – Hurstville), reference has already been made (at [171]) to the finding that, in response to an enquiry Mr Chapman made as to whether financial information was available, Mr Allsopp said that it was not and that this was because of privacy concerns; also that Mr Chapman could speak to any existing owner managers about their financial performance and that he would arrange meetings for Mr Chapman with any he wished to speak to.

195. In the case of Mr Johnson (Shamarbre - Hornsby), the primary judge found (at [1534]) that he was told that he needed to make his own enquiries and that he was “able to, and did, make enquiries of other franchisees”. The judge referred (at [1596]) to Mr Johnson having spoken to owner managers at North Parramatta, Castlereagh Street Sydney and Dee Why, which were all of the metropolitan branches operating at the time.

196. There was a finding at [1732] in relation to Mr McCoy (SME – Bondi Junction) that he understood that it was for him to make his own enquiries, that he did so and that he spoke to a number of owner managers.

197. In relation to Mr and Mrs Sargent (Leokate – Miranda), the primary judge noted that each had spent time working at the Castlereagh Street OMB and that Mrs Sargent had also worked at the Menai, Kensington and Campbelltown branches. That being so, the judge found it “hard to believe that Mr and Mrs Sargent were unaware of how those branches were doing or at least unable to make enquiries about that matter if they thought it was significant”. Mr Sargent explained in evidence that he did not make enquiries because “I don’t inquire of people’s finances” because it is socially unacceptable to do so. The judge considered that explanation implausible, adding:

“If it had been of significance to Mr Sargent and if it reflected the fact, Mr Sargent could easily have said to the Owner Manager of another branch that Mr Allsopp had told him that he could expect to write $4 million in loans per month (from day one) and to ask whether that reflected the Owner Manager’s experience.”

199. In the case of Mr Jones (Best Deal – Toronto), there was an explicit finding at [1822] that he appreciated that he needed to make his own enquiries to determine whether a franchise operated by him would be successful; also (at [1850]) that he visited the Manly and Carlingford Court branches.

200. Mr Xu (LJH – Hurstville), the judge said (at [1926]), was given an opportunity to be put in touch with other managers and in fact nominates several to whom he spoke.

201. These are examples of findings to the general effect that the several prospective franchisees knew and understood that it was for them to make a business case for the establishment of a particular branch and, for that purpose, to make such enquiries as they thought fit, with BOQ facilitating contact with the owners of already operating OMBs if that were sought.

202. Statements to prospective franchisees that they should make their own inquiries were consistent with the content of the EOI letter and the franchise disclosure document. They were also consistent with clause 5 of the representations deed which contained an acknowledgment by the franchisee and its principals that they had, in effect, made and relied on their own investigations.

Pre-opening non-disclosure – was there “reasonable expectation”?

203. The crucial question is whether the course of dealing by BOQ with each prospective franchisee group before execution of the agency agreement (or opening of the branch) was such as to give rise to an objectively reasonable expectation on the part of each such group that BOQ should volunteer – that is, communicate spontaneously and without request – information that BOQ possessed about the actual financial performance of established OMBs in New South Wales, whether individually, as a group or on some kind of indicative average basis. As the authorities show, the answer to that question depends on the whole of the circumstances. Reference should be made to several aspects of those circumstances.

204. In the first place, each prospective franchisee had chosen a particular suburb or town in which to establish a business and had prepared a business plan for that location. As has been seen, all OMB principals were persons of some commercial sophistication, all had business experience and most had specifically banking experience. Their sophistication and experience were to be deployed in establishing a business at a specifically chosen location from which the prospective franchisee aimed to make money by way of commissions paid to it by BOQ. Those commissions were geared to volumes of business transacted.

205. Second, Mr Allsopp had made statements to the principals of the proposed OMBs about levels of future business which, on the assessment of the primary judge which I consider to be correct, were statements about what was hypothetically possible. They were nevertheless statements that impinged upon the consciousness of those persons and affected their thinking.

206. Third, BOQ was in a contractual relationship with each of the franchisees who had previously established OMBs in New South Wales. There was a flow of information from each such established OMB operator to BOQ. One of the core functions of the agent prescribed by the agency agreement (clause 3.1(e)) was to “report Branch sales activity to the Bank”. BOQ therefore had, at any given time, knowledge about levels of activity achieved by pre-existing OMBs in the areas of business with which the statements of hypothetical possibility were concerned.

207. Fourth, the principals of each prospective OMB were told by BOQ that it was for them to investigate the feasibility and viability of their business proposal. Documents given to them (particularly the EOI letter and the franchisee disclosure document) made it clear that BOQ could not give assurances or make predictions about revenue or profitability and that they should not only read all of their documents but also talk to other franchisees.

208. Fifth, Mr Allsopp consistently told individuals who asked that it was for them to make their own inquiries about whether their proposed branch was likely to be successful and that BOQ would, if they wished, put them in touch with existing OMB proprietors.

209. Sixth, several individuals did approach existing OMB proprietors with a view to obtaining information about levels of business and the like.

210. Seventh, each prospective OMB operator’s proposal was a proposal to enter into competition not only with other banks but also with BOQ and other BOQ OMBs. The financial structure of a franchise was such as to make it desirable that an OMB try to obtain business that might otherwise go to a BOQ corporate branch or another OMB. This point requires some elaboration. An OMB established at, say, Bankstown would compete only in the broadest sense with a BOQ corporate branch or OMB operating at Townsville or in a suburb of Brisbane. A much more meaningful competitive interface would exist between, say, Southpole’s proposed new Bankstown OMB and the established OMB at nearby Punchbowl. The same interface would exist between a new Shamarbre OMB at Hornsby and the established OMB at Carlingford; or between Traderight’s new Castlereagh Street Sydney OMB and the established OMB at World Square Sydney. In each of those situations, the new OMB entrant would have an incentive to try to attract customers who were already dealing with the pre-existing OMB operating nearby, to seek to do business with customers of the nearby OMB and to deflect potential new customers away from that OMB and towards itself.

211. In at least one case (Mr Chapman), Mr Allsopp was asked whether there was any financial information that he could give, and Mr Allsopp gave a negative answer because of privacy concerns, but said that Mr Chapman could speak to existing OMB managers about their financial performance and that meetings would be arranged with any to whom Mr Chapman wished to speak. That was a rational and expected response. In citing privacy concerns, Mr Allsopp was, in my view, recognising that specific information BOQ had from and about any pre-existing OMB was of a commercially confidential nature or, at least, might well be regarded by the proprietor of that OMB as being of that quality. Mr Allsop therefore did not regard himself as free to impart such information to a prospective OMB proprietor with whom negotiations were in progress. The franchise disclosure document stated quite clearly that BOQ did not provide earnings information about OMB agents and branches. The circumstance that the new OMB would or could be in competition with one or more existing OMBs is a factor that must have shaped Mr Allsopp’s unwillingness. But, of course, if the existing OMB proprietor, having received an approach direct from the prospective entrant at the instigation of BOQ, chose to give certain information, that was a matter entirely for that proprietor.

212. Viewed as a whole, the context was one in which the positive statements made by BOQ as to what was hypothetically possible in terms of OMB business generation were made to commercially sophisticated persons with business experience to whom BOQ had made it clear, both orally and in writing, that it was for them to investigate the feasibility and viability of their own business proposal; that BOQ did not provide information about OMB earnings; that BOQ could not give assurances or make predictions about revenue or profitability; that they should talk to other franchisees; and that BOQ would facilitate introductions to other franchisees for that purpose. A particular aspect of the context was BOQ’s recognition of the commercial reality that information about financial performance received by it from existing franchisees was of a private or commercially sensitive nature so that, if it was to be disclosed by way of assistance to an intending new entrant, that disclosure should properly come from those existing franchisees who could safeguard their own interests (including competitive interests) by choosing what information to give and the form in which it should be given – and, of course, at the threshold, whether any information should be given at all. Furthermore, several prospective franchisees accepted the position presented by BOQ and made approaches to existing franchisees with a view to obtaining relevant information from them.

213. With the context and circumstances configured in the way just described, the primary judge was, in my opinion, correct in his conclusion that there could have arisen no “reasonable expectation” on the part of prospective or recently signed-up franchisees that BOQ should take positive and unsolicited action to share with them information BOQ possessed about the financial performance and business levels achieved by existing franchisees, which information concerned the separate business operations of those existing franchisees and came to BOQ because of its contractual and business relationships with those parties. That conclusion was sufficient to cause the “pre-opening non-disclosure” case at first instance to fail.

Pre-opening non-disclosure – reliance

214. The appellants say that the primary judge should not have treated what he found to be absence of reliance by franchisees as a factor relevant to the capacity of the pre-opening non-disclosure to mislead or deceive and, therefore, the quality of the conduct by silence.

215. Since, on the view I take, the maintenance of silence about which the appellants complain did not, in any event, constitute conduct within s 52 (or s 42), that issue is of no direct relevance to the outcome on appeal. I would, however, confirm that, for the reasons I have given at [161] to [163] above, the question of reliance properly belongs to any inquiry into whether loss or damage was occasioned “by” prohibited conduct.

Conclusion

216. The appellants have not established error in the conclusions of the primary judge that BOQ and other defendants did not, in relation to “target statements”, “break-even statements” or “pre-opening non-disclosure”, contravene s 52 of the Trade Practices Act or s 42 of the Fair Trading Act.

217. The appeal should therefore be dismissed with costs.

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Amendments

15 April 2015 - Whole document replaced

Decision last updated: 15 April 2015