Van Camp v Muffin Break Pty Ltd
[2008] FMCA 386
•28 March 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| VAN CAMP v MUFFIN BREAK PTY LTD | [2008] FMCA 386 |
| TRADE PRACTICES – Sale of franchise – misleading and deceptive conduct – oral representations – alleged projection of sales – alleged representation about suitability of site for franchise – both representations denied – projected sales not achieved – acknowledgements by franchisee in documents that no representations were made – significance of acknowledgements – whether written documentation embodies the whole of the agreement between the parties – credibility of principal parties – examination of the whole of the circumstances surrounding the purchase – strict liability imposed by s.52 of Trade Practices Act. |
| Trade Practices Act 1974, ss.51A, 52, 84(2) and 87 |
| Butcher v Lachlan Elders Realty Pty Ltd (2004) 218 CLR 592 Elders Trustee and Executor Company Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 Gould v Vaggelas (1985) 62 ALR 527 |
| Applicant: | R & L VAN CAMP |
| Respondent: | MUFFIN BREAK PTY LTD |
| File Number: | MLG162 of 2007 |
| Judgment of: | O'Dwyer FM |
| Hearing dates: | 10 – 14 September; 8 and 9 November 2007 |
| Delivered at: | Melbourne |
| Delivered on: | 28 March 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr Michael Osborne |
| Solicitors for the Applicant: | B2B Lawyers |
| Counsel for the Respondent: | Mr William Gillies |
| Solicitors for the Respondent: | Norton Gledhill Lawyers |
THE COURT DECLARES AND ORDERS THAT:
The applicant was entitled to rescind ab initio the Franchise Agreement and Licence Agreement entered into with the respondent dated 20 June 2006.
The respondent pay the applicant the sum of $316,570.31, plus interest payable on the loan facility for the period 1 September 2007 to 28 March 2008
The respondent pay the applicant’s cost of and incidental to the proceeding as agreed, and in default of agreement, to be taxed in accordance with Schedule 1 Part 1 of the Federal Magistrates Court Rules2001.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG162 OF 2007
| R & L VAN CAMP |
Applicant
And
| MUFFIN BREAK PTY LTD |
Respondent
REASONS FOR JUDGMENT
(AS AMENDED)
Introduction
This is a claim for compensation by the corporate purchaser of a franchise outlet from the respondent. The respondent is the franchisor of a business specialising in the provision of coffee and muffins throughout Australia in medium to large retail shopping centres. The applicant purchased an outlet at the Forest Hill Chase Shopping Centre (the FHC site) and carried on business there for the period 10 April 2006 to 20 November 2006. This site was a greenfield site; that is to say, it was the first such outlet at that particular shopping centre. This is significant, as the respondent was unable to provide any history of prior trading before the applicant purchased the franchise.
The applicant alleges that, in short compass, it was provided with projected sales that did not eventuate and was induced into the purchase of the franchise by representations about the suitability of the site for such an enterprise, both representations allegedly made in breach of s.52 of the Trade Practices Act 1974 (the Act). There was no issue between the parties as to whether the respondent in its dealings with the applicant was engaging in trade or commerce, or that s.52 had application.
The particulars of such representations are set out in more detail below. Suffice to say, the expectations of the applicant were not realised, it suffered loss and now looks to the respondent for compensation pursuant to s.87 of the Act.
The conduct complained of by the applicant is primarily that of Mr Brusch acting as an employee of the respondent, and Mr Infanti acting as a director of the respondent. Under s.84 (2) of the Act, such conduct is deemed to be that of the respondent. No issue was taken on this point by the respondent
Pivotal to the determination of this case is the question of the credit of the principal personalities involved and the accuracy of their understanding of events.
Hereafter a statement of fact is to be taken as a finding of fact unless the context suggests otherwise.
Background
The applicant was incorporated and used as the structure by which a husband and wife team, Mr and Mrs Van Camp proposed to conduct the purchase and running of the franchise. The principal participant in the lead up to the purchase was Mr Van Camp, with Mrs Van Camp playing very little role in the lead-up to the purchase and, indeed, in its running once purchased (save for some clerical work). The principal participant was Mr Rhys Van Camp.
Mr Van Camp has a long history of involvement in the motor car industry. He was employed as a manager in that industry between 2000 and 2004 in Albury. From 2004 to 2005 he was employed as a manager in Melbourne before leaving the industry to operate the FHC site. His employment in Albury, however, is significant in the context of this case. It was whilst he was employed there that he befriended the owner of the Wodonga franchise of the respondent. By invitation of that owner he had direct exposure to how the franchise operated. He observed what he understood to be a very successful franchise.
It is not unfair to say that he was impressed by the apparent financial success of the Wodonga franchise and by how the franchisor operated. He endeavoured to purchase that franchise, but for various reasons that did not come to pass. Again, it is not unfair to say, from that experience he considered a Muffin Break franchise as providing financial opportunity and security. It is also not unfair to say that from then on he set his heart on obtaining such a franchise outlet.
There is further background considered significant by Mr Van Camp. He believed he had a special relationship with the respondent through his father’s business network. That relationship, in my view, was fairly tenuous, but nonetheless he believed it very important because it afforded him, he believed, favourable consideration by the respondent. Based on that network, I understood Mr Van Camp to believe that the respondent would do the right thing by him and he could rely uncritically on what was said to him.
That connection to the respondent which Mr Van Camp found so reassuring was based upon his father’s business partner whose cousin was a friend of a director of the respondent – as I said, fairly tenuous. At the request of Mr Van Camp, through his father’s business partner, contact was initiated with that director to advise of Mr Van Camp’s interest in a Muffin Break franchise. His father’s business partner then provided him with a point of contact at the respondent; namely, Mr Sergio Infanti. Mr Van Camp made contact with Mr Infanti straightaway. The evidence concerning this contact is discussed in more detail below. Mr Infanti then referred Mr Van Camp to the respondent’s representative in Melbourne, Mr Tony Brusch.
Mr Van Camp met with Mr Brusch at the FHC site on 30 November 2005. This is a significant meeting and what took place at that meeting, and what was said, is pivotal to the outcome of this case. There is a stark conflict in the evidence as to what happened on this occasion.
The alleged representations
Mr Van Camp alleges the respondent engaged in conduct contrary to s.52 of the Act. That conduct is said to be constituted by the following:
(i)that Mr Infanti acknowledged the connection through his father’s network and informed Mr Van Camp that there was a “unique opportunity happening at Forest Hill Chase”;
(ii)that the respondent had done its research and determined that the FHC site was a suitable site for the establishment of a franchise outlet (per Mr Brusch); and
(iii)that Mr Van Camp was shown, in print form, by Mr Brusch the projected sales he could expect over the initial months of trading.
Mr Van Camp alleges that:
(i)contrary to the representation made that the site was a unique opportunity - the inference being an opportunity to create a successful franchise – it was not. The site chosen, having regard to the nature of the shopping centre and its demographic customer base, was an unsuitable site for the establishment of a Muffin Break franchise; and
(ii)the projected sales were not realised, despite his best efforts.
The respondent’s primary position
Simply put, the respondent contends that none of the representations the applicant relies on were made. In support of that contention, I was urged to give appropriate weight to:
(i)the credibility of Mr Brusch, about whom I was asked to make a favourable finding relative to Mr Van Camp based on their respective performances in the witness box;
(ii)the necessary inferences to be drawn by the acknowledgements appearing in the documentation signed by Mr Van Camp that no representations were made;
(iii)the failure of Mr Van Camp to inform significant advisers of the projected sales representation, with again the inference being it was not made;
(iv)the failure of Mr Van Camp to do what was expected of a prudent purchaser to safeguard his own interests and obtain proper legal, accounting and business advice from fully informed advisers. (It was also put, although not strongly, but more as a buttress to the inferential argument, that even if such representations were made, that does not relieve the applicant from making proper inquiry and from reading the documentation thoroughly, and further from having insisted that such representations be included in the documentation.); and
(v)the reasonable and necessary inferences to be drawn as set out, leads to the conclusion that the documentation embodies the whole of the agreement between the parties.
The documented acknowledgements relied on by the respondent
In the documentation executed by Mr Van Camp there were numerous acknowledgements that the documents were the full embodiment of the agreement and that no representations were made by the respondent to the applicant. Specifically, the following acknowledgements appear:
(a)Paragraph 19.1, Franchisor Disclosure – “Franchisor does not provide projections on earnings and the prescribed statement is given in paragraph 19.4 of this disclosure document”.
(b)Paragraph 19.4, Franchisor Disclosure – “The franchisor does not give earnings information about a Muffin Break franchise. Earnings may vary between franchises. The franchisor cannot estimate earnings for a particular franchise.”
(c)Agreement to proceed signed 27 January 2006 – “Like any business, risk is involved and no representation or guarantee (whether oral, written or implied can be, or has been given in relation to the store’s success, profit or potential turnover. (if any such representation or guarantee has been made by the Franchisor and/or the lessor’s representatives you must specify it below).” No representations were specified on this form.
(d)Questionnaire signed 27 January 2006. There appears at the bottom of the first page the following – “Please Note, Muffin Break does not represent or warrant in any way that a particular level of income is attainable”.
(e)Statement as to advice by franchisee signed 27 January 2006 which acknowledges Mr Van Camp has had the opportunity to read and understands the acceptance of the franchisee’s disclosure statement.
(f)Statements of Legal and Accounting advice, both signed 27 January 2006, which acknowledge legal and accounting advice had been obtained by Mr Van Camp.
(g)Foodco Prospective Franchisee document signed on 27 January 2006 which is a tick a box questionnaire that acknowledges that no turn over figures were provided, that no person has made a statement in relation to actual or projected profits, or the likelihood of success, and no person has made any statement or promise about the amount of money or revenue to be earned. It also asked the question, do you understand that the franchise agreement contains the entire agreement and that any statement or promise not included in the Foodco Franchise agreement in writing will not be binding upon Foodco, to which Van Camp purported answered, yes.
(h)Agreement to enter into franchise agreement and licence agreement dated 23 March 2006 and the franchise agreement dated 20 June 2006, both having common clauses 16 and 21.3.
Clause 16 provides:
16LEGAL ADVICE AND RISK
16.1Franchisor recommends that Franchisee obtains legal advice in respect of this document and the Related Documents and Franchisee acknowledges such recommendation and that Franchisee has had the opportunity to obtain such advice.
16.2Franchisee acknowledges that Franchisee has conducted an independent investigation of the business and the Franchised Business and recognises that:
(a)the Franchised Business involves business risks that make the success of the Franchised Business largely dependent on Franchisees and business abilities; and
(b)although Franchisor has used its best endeavours to ensure that the Franchise site is satisfactory for the operation of the Franchise Business, Franchisee shall make no claim against Franchisor as a consequence of the location of the Franchise Site proving to be unsatisfactory for the conduct of the Franchise Business.
Clause 21.3 provides:
21.3Entire Agreement and Acknowledgement
21.3.1This document together with any Related Document contains the entire agreement and understanding of the parties with respect to the Franchised Business and the Business.
21.3.2There are no representations, undertakings, agreements, terms or conditions not contained or referred to herein or in the Related Documents.
21.3.3This document supersedes and extinguishes any prior written agreement between the parties or any of them relating to the location of the Franchise Site.
21.3.4Franchisee confirms and acknowledges that prior to having executed this document Franchisee has read the provisions of this document carefully.
(i)Email from Nadia Micalessi dated 8 February 2006 to Mr Bain, the applicant’s banker, which stated when attaching a pro forma expense statement – “Please note, this model is to show estimated expenses. It is not a sales or earnings projection.”
As stated, the respondent submits that the various acknowledgements set out above lend weight to the conclusion that no representation was made by Mr Brusch, as alleged, about projected sales and suitability of the site, or by Mr Infanti about the suitability of the site.
The respondent further submits that to give efficacy to the agreement, and for all the commercial necessity for such as canvassed by the Court of Appeal in Real Estate City Pty Ltd v Moustafa (2005) VSCA 181 at [36], the applicant cannot lightly avoid the import and ramifications of his acknowledgements, including those clauses that can be said to have extinguished any prior representations.
The conflicting evidence and the assessment of credit
The credit of principal witnesses
Counsel for the respondent, after making reference to the trite warnings about the tendency of witnesses to reconstruct, however innocently, past events to suit their need and to support their case (see Watson v Foxman (1995) 49 NSWLR 315 per McLelland CJ at 318 t0 319) invited me to apply those critical assessments to Mr Van Camp and find his evidence less creditable than that of the principal witness for the respondent, Mr Brusch. Those warnings are indeed very pertinent in general; but, in particular, in this case. However, they apply to both the principal witnesses and when applied, for the reasons set out below, I prefer the evidence of Mr Van Camp than that of Mr Brusch who I found to be a most unworthy witness.
Mr Van Camp
Mr Van Camp presented as someone not particularly articulate, but nevertheless, as a generally honest witness. He had a genuinely poor memory, in my view, as to detail, but a good memory for key events – particularly those precipitous events in his dealings with the respondent’s representatives leading up to him agreeing to purchase the franchise at the FHC site.
The respondent attempted, unsuccessfully, to discredit Mr Van Camp because of apparent discrepancies between his evidence and notes made in his diary. I am satisfied the diary was plainly an aide memoir and when one looks at the diary it does precisely what Mr Van Camp said it did; that is, records the things that were said to him and things he had to do.
Mr Van Camp impressed as an individual hell bent on purchasing a franchise outlet from the respondent. He impressed as naive to some commercial realities; blinded to some degree as he was by his experience and understanding of the expected profits he saw apparent in the Wodonga franchise, and later reinforced from his experience at the franchise in the Know Shopping Centre. I am sure he uncritically accepted, particularly having regard to the projected sales and the assurance about the uniqueness of the site, the notion that to own such a franchise would be a source of financial security for himself and his family, and for his own reasons – again, naively in my view- believed through his father’s tenuous network with the respondent, he would not be badly done by and could rely on the respondent to “do the right thing by him”. In my view, he had that mindset when dealing with the respondent. To that degree it can be said that he was not a prudent purchaser and may very well fit the description of “foolish”. However, for the reasons set out below, he was encouraged in that mindset. His uncritical belief in the viability of such a franchise, if not engendered, was significantly reinforced by the representations made to him about projected sales and the suitability of the site.
Mr Brusch
Mr Brusch presented as a nervous and anxious witness who impressed as most concerned to protect his standing with his employer. He was also very evasive and his evidence in many regards, as highlighted below, was contradictory and most unpersuasive.
He admitted when he dealt with Mr Van Camp he was inexperienced in negotiating and dealing at first instance with a prospective franchisee. It was his first experience of it. From the evidence, he manifestly got it wrong in a number of undisputed areas. The timing of signing of some documentation and the demand for the payment of a deposit and franchise fee are but two examples of how he muddled his way through what would normally be a “turn key” process for the respondent which deals with very many such applications for the purchase of franchises around Australia. It is not unfair to say, in my view, he simply did not know what he was doing by way of process - an obvious conclusion on the evidence, but one which did not prevent Mr Brusch, at least initially, maintaining that he followed the proper process; that although it was his first time, he had others around him to advise. This was but one example of the contradictory nature of his evidence.
Another example was his evidence about the faxing of the file to Sydney head office before any issue arose with Mr Van Camp about projected sales not being reached. When documents were produced, it became evident that very significant documents were sent to the Sydney head office on 6 June 2006; that is, at a time after the issue arose about projected sales when Mr Van Camp’s solicitors raised it in correspondence. No satisfactory explanation was given as to why they were not sent earlier and why they were sent when they were. These diary notes were disparaging of Mr Van Camp.
One purportedly written only two days after opening the site speaks of Mr Van Camp’s “work ethic, stamina levels, ability to train staff and lack of desire to bake/clean and carry out operational duties… Rhys changes his mind slightly showing that he had exaggerated and embezzled the truth a little…” There is, I note, from Mr Brusch’s perspective, a very self serving aspect about those diary notes. They attempt, at a purportedly early stage of observation, to lay the foundation for criticism of Mr Van Camp and his management of the site. They, in my view, having regard to their content and the time they purportedly relate to (ie the start of operations), are a contrivance that defy logic, both as to their content and the timing of them being sent to head office. These diary notes are designed to protect Mr Brusch in any contest between himself and Mr Van Camp as to events, and generally discredit Mr Van Camp in the eyes of Mr Brusch’s employer.
One diary note was dated 16 June 2006, whereas it was sent to head office on 6 June 2006. When this was highlighted, Mr Brusch changed his evidence and said it should have been dated 16 May. This is further evidence, in my mind, supportive of the conclusion that these diary notes were not contemporaneous, and were manufactured in June and contrived to set the foundation to discredit Mr Van Camp in the eyes of Mr Brusch’s employer and thereby protect Mr Brusch’s position there. One must ask why he would need to do this, and I believe the answer is very obvious – because he knew then, even if he did not at the time of making the representation, that he had breached the respondent’s practice by making a representation about projected sales; realising he had exposed the respondent and himself to adverse outcomes.
These diary notes have the stench of contrivance about them. Their existence, how they, of all documents, came to be sent to Sydney only after the issues arose, whereas parts of the file had been sent earlier, draws me to the conclusion that they are indeed contrived documents. The end result is that Mr Brusch’s credit is further tarnished.
I am further satisfied these diary notes are a contrivance designed to set the ground for an argument that the failure of the franchise can be laid at the feet of the applicant for poor performance. Incidentally, any argument that the failure of the franchise can be laid at the feet of Mr Van Camp for poor management does not withstand factual analysis as after he vacated the site the respondent ran it for some time before finding a replacement franchisee who also ran it at a much less successful level than Mr Van Camp. The evidence was it is only recently beginning to show profit; but this was after significant changes were made to the Forrest Hill Shopping Centre by of tenant mix and layout.
Unique opportunity
Mr Van Camp gave evidence that when he made contact with the respondent’s director, Mr Infanti, he was told by him that, “I have got a unique opportunity at Forest Hill Chase, a non-established Muffin Break.” Mr Infanti denies using the expression “unique opportunity”, although does admit to using the word “opportunity” in the discussion, but in a different context. I discuss the evidence of Mr Infanti below. On balance, however, I can say that I accept Mr Van Camp’s version of the conversation. His recollection of it, I am satisfied, is very vivid; it being such a significant first point of contact he had with someone from the respondent in authority, and someone he understood his father’s network had procured. I am further satisfied the suggestion of a “unique opportunity” was meant to convey to Mr Van Camp that to be offered the FHC site was special, to his considerable advantage and confirmation in his mind that his father’s business network had already paid dividends. It was an expression, subjectively, that reinforced Mr Van Camp’s belief he was on the road to the purchase of a successful business. Of course, the respondent cannot be said to attract liability because of this unwise, subjective assessment of his relationship with the respondent. However, on a more objective basis, the expression “unique opportunity”, in my view, does connote an opportunity for advancement, a reassurance that good things would flow from the chance to take up this franchise independent of any notion by Mr Van Camp that he was being “looked after by the people at the top.”.
30 November 2005 meeting
The meeting held at the FHC site on 30 November 2005 is a determinate meeting. The parties present, namely Mr Van Camp and Mr Brusch, agree that a document was produced that set out weekly sales figures, ascending each week, starting from $5,000 and progressing to $14,000, by increments of $1,000. Under them were the expenses and outgoings to expect, showing profits generated relative to sales achieved. The document was described as a “pro forma expenditure statement”. Although shown to Mr Van Camp, he was not provided with a copy then, but later provided with one via his finance provider who in turn was given one by the respondent’s Ms Micalessi. Mr Brusch agrees that the notation appearing on the pro forma expense statement, forwarded by Ms Micalessi, warning that the figures were not to be taken as sales or earnings projections did not appear on the document he showed Mr Van Camp. Mr Brusch further agrees that it was the first time he had ever used such a document.
On the document he had entered the known lease expense for the site. He did not see fit at that stage to note, as was later done, the warning that the figures were not meant to be taken as projected sales figures for the site. For someone who later, in the witness box, professed an understanding throughout his dealings with Mr Van Camp that projected sales figures were never to be given to a prospective franchisee, he could offer no explanation why the written warning was not given on this occasion, but later included by him in the statement sent by Ms Micalessi. Also, the fact he entered the lease expense on or prior to that date is inconsistent with his later evidence that he was generally unaware of the respondent’s lease commitments to the Forest Hill Chase Centre that were then extant.
It is to be noted that the calculation of outgoings is done on a percentage of sales (save for the lease expense). Why a document setting out the percentage formula for calculating those expenses was not provided instead of the figures based on sales, was never explained by the respondent. The mere fact, in my view, that the document sets out sales figures, leaves it open to be interpreted by a prospective franchisee as indicative of likely sales that are achievable - otherwise, why use these particular sales figures. The respondent says it is meant to be illustrative of expenses to assist a prospective franchise in deciding. In my view, it is a seriously, inherently dangerous document, pregnant as it is with promise of large profits on making large sales. It is a document that, if it is to be used as the respondent suggested, must come with very clear, unequivocal warnings as to its purpose; namely, that it is not to be used as a projection of sales by intended franchisees. Even with such warnings, it is inherently, in my view, designed to create expectations that may never be fulfilled. I do not agree, as Counsel for the respondent submitted, that the “document itself simply sets out a set of figures and is innocuous as far as it goes.”
The respondent relies with confidence on the evidence of Mr Brusch as to what was said at the meeting about this document and the purpose for which it was put. It is a confidence misplaced.
Mr Van Camp is adamant that Mr Brusch used this document to show the sales figures he could expect each week from start up time and that from them he could gain an understanding of the profit he could expect from this franchise.
Mr Van Camp says he has a clear memory of Mr Brusch saying to him, “you can expect sales of $11,000/$12,000 per week, but it will take a good 3 months and then you will be right after that. The first month will be a hit and then it will die down a bit.” He was then shown the document and was pointed to the columns headed “Weekly Sales”. Mr Van Camp recalls Mr Brusch saying, “this is what you’ll be doing in the first week, the second week etc”. Mr Van Camp says he was reassured by these figures.
On Mr Van Camp’s evidence there was a discussion about likely sales at the meeting on 30 November 2005. Mr Brusch says there was no such discussion. A highly improbable circumstance, in my view, where the parties are meeting on site and shown likely expenses based on sales figures. I find Mr Brusch’s evidence in this regard palpably, inherently implausible. A key factor for any prospective franchisee is to determine profitability of a franchise and in this instance that is determinate on the level of sales that could be expected. To look at expenses, without any consideration of sales, as Mr Brusch would have the Court believe was the approach asked of Mr Van Camp, defies logic. Whatever may be the shortcomings in Mr Van Camp’s business acumen, that would not be one. The level of naiveté needed to be found in Mr Van Camp for such a proposition to be credible was not evident in Mr Van Camp when he gave his evidence. As stated, his evidence was very credible as to what the pro forma expense statement was used for by Mr Brusch. I have no hesitation in finding that the representation was made by him, and further that the representation about the sales projections induced in Mr Van Camp the belief that he was about to take on a successful business enterprise. With that induced belief brought about, if not solely, to a very significant degree by Mr Brusch’s representation, Mr Van Camp was prepared to enter into the franchise and associated licence agreements.
Mr Brusch was adamant that he never said they were projected sales figures and confirmed that it was company policy never to give prospective franchisees any projected sales figures. He spoke in this context about company policy as if he was then aware of it and would have applied it without any doubt. For reasons set out below, I formed the view that Mr Brusch either may not have been aware of company policy, as he seemed unaware of other processes, until after this issue became enlivened or, because of my general assessment of Mr Brusch as being dishonest, he was prepared to ignore company policy to ensure he persuaded Mr Van Camp to take up the franchise at a site that was proving problematic from the perspective of finding a franchisee in a timely manner.
The respondent argued that the idea that these figures were to be taken as projected sales for this site was a matter of relevantly recent invention by Mr Van Camp. Against that contention, however, I note that the respondent’s Ms Michelle Kennedy, Retail Operations Manager/Consultant in an email to Mr Brusch on 15 May 2006 highlighted her concern that Mr Van Camp had raised with her his expectation about sales based on projected sales figures given to him. Also, in correspondence from Mr Van Camp’s solicitor to the respondent dated 31 May 2005 the following appears – “despite his best endeavours to reach projected target sales figures.” These two references close to starting the franchise operation are consistent with Mr Van Camp’s stated position on this and manifestly inconsistent with the respondent’s suggestion the issue of projected sales figures is a more recent invention; namely, at the time of issuing proceedings.
Mr Van Camp also gave evidence that at the meeting Mr Brusch said that, when speaking of the site, “there is a good demographic of people here. Muffin Break has done its homework to enure the site is a unique site.” This is denied by Mr Brusch. For reasons set out above and below, I do not find Mr Brusch a truthful witness and I accept Mr Van Camp’s evidence about this statement. Again, this was a representation that reinforced in the applicant the perception that this franchise, on this site, would be successful.
Mr Van Camp also alleges that Mr Brusch referred to the FHC site as a “ripper of an opportunity”. Again Mr Brusch denies using this expression and went further to say the use of the word “ripper” is foreign to him. He is English and through the respondent’s counsel I was urged to find someone with Mr Brusch’s English background would not use such an expression. This is patently preposterous. Again Mr Brusch’s credit is determinate of this issue. I find Mr Van Camp’s recollection of this part of the conversation accurate. Again it is another example of the pitch used to induce Mr Van Camp to proceed with the purchase of the franchise.
Ms Michelle Kennedy was the Retail Operations Consultant assigned to monitor and assist Mr Van Camp in the establishment of the franchise. In over 13 years of adjudication, I have never experienced a witness quite like Ms Kennedy. She was unnecessarily and bizarrely aggressive, and obviously unhappy about being required to give evidence in this case. She was evasive, purported to have a poor memory of important events; such as the conversation between Mr Van Camp and herself that caused her to generate her email to Mr Brusch of 15 May 2006. In that instance she had no recollection of the underlying conversation with Mr Van Camp, or whether she spoke to Mr Brusch about it at all.
She was generally uncooperative with both the applicant’s and respondent’s counsel. She was a most unimpressive witness.
She did nonetheless refute the allegation made by Mr Van Camp about her statement that the franchise would achieve good sales in the relatively near future. As between the two, however, Mr Van Camp’s evidence was far more convincing and I accept his version of events as being true and accurate. I accept Ms Kennedy reassured Mr Van Camp with the words, “don’t worry Rhys, it will beat $12,000 soon.”
Whilst this representation was made after the purchase of the franchise, it is nonetheless, in my view, confirmatory of the earlier representations made by Mr Brusch about projected sales and is entirely consistent with Mr Van Camp’s understanding of events.
The evidence given by Mr Brusch in the witness box about the conversation between himself and Mr Van Camp that centred on the production and explanation of the pro forma expense statement was, in my view, inherently improbable. In effect, when presented with the statement and when told about Mr Van Camp’s obligation to do his “due diligence”, he, according to Mr Brusch, sat mute – no interaction about what level of sales he might expect from the site, no questions asked as to how he might pursue his due diligence enquiries. I note that Mr Brusch conceded that at the meeting they discussed expenses, price, the takings at the Wodonga store, but not at the site Mr Van Camp proposed to purchase. In my view, again, if you are discussing price of the franchise, expenses and takings at another store, it is highly improbable that they did not discuss the takings at the very site Mr Van Camp was interested in. In my view, Mr Van Camp’s version of events on 30 November 2005 is to be preferred, not only because of the objective improbabilities of Mr Brusch’s version, but also because of my assessment of Mr Brusch, both by his demeanour in the witness box and the evasive, inconsistent and downright misleading nature of his evidence, that he was a person not to be believed.
If someone has alleged they entered into an agreement by an inducement, by a statement made and they become aware that the statement is not true, you would expect that person to complain as soon as they become aware of its falsity. That is exactly what happened with Mr Van Camp. When a few months had passed and he was not taking what was represented to him, he complained, first to Ms Kennedy and then through his solicitors. This is consistent behaviour on Mr Van Camp’s part which is supportive of a finding, on balance, that the representation as to takings was made. The email from Mr Kennedy to Mr Brusch of 15 May 2006 is corroborative of his understanding of events.
Further representations leading up to 27 January 2006
Mr Van Camp’s evidence is that on a number of occasions during December 2005 and January 2006, Mr Brusch rang him chasing up a requested $10,000 deposit. Mr Brusch was anxious to get him signed up and stated, “I have shown you the weekly forecast figures for what the store should be doing – you are losing money. I have shown you how much you can make.” Again, Mr Brusch denies saying this. Again, I accept Mr Van Camp’s evidence in this regard. This evidence reinforces the evidence of the representation made about projected sales and helped induced or reinforce a sense of confidence in Mr Van Camp about the successful nature of a franchise outlet at Forest Hill Chase.
This line is also consistent with what I find was said to Mr Van Camp when he was attending franchisee training in Sydney in early February 2006. He had cause to complain about being pressured by the respondent to pay $64,000. When it became apparent that Mr Van Camp was unhappy, Mr Infanti said to him, “don’t let Forest Hill get away from you as it is an unique opportunity.” Mr Infanti agrees he spoke to Mr Van Camp when he became aware he was unhappy, but denies the pertinent content of the discussion, although he admits to other aspects of it as recalled by Mr Van Camp. Mr Van Camp displayed a good memory of other aspects of the conversation which were confirmed by Mr Infanti and I am satisfied his memory is sound on all aspects of the conversation. I accept Mr Van Camp’s evidence on what was said. Again, it is consistent generally with the events and circumstances acknowledged to have taken place by all the parties, and in the particular, consistent with Mr Van Camp’s understanding of the discussion that took place which was designed to placate him and allayed his concern.
The signing of documents on 27 January 2006
Mr Van Camp also gave evidence of how it came about that he signed requisite documentation - which documentation is now relied on by the respondent - in which he acknowledged matters pertaining to representations made to him, or not as the case may be. He states that the meeting that took place at the offices of Mr Brusch on 27 January 2006 was rushed and did not afford him an opportunity to study the documentation put before him for signature. He says he went to the meeting with the understanding that he would hand back the documents he had been given earlier and pay the requisite deposit of $10,000. He did not understand that he would be required to sign any documents. He further did not expect a demand at the meeting for a payment of an extra $64,000. I accept his evidence in these regards.
He recites that Mr Brusch was anxious about a bushfire burning near his home (the fire was at Kinglake, Mr Brusch lived at Christmas Hills – in bushfire terms, not a great distance apart) and wanted to get the signing of documentation over and done with quickly so he could go home. He states that a questionnaire was filled out by Mr Brusch on his behalf, and that Mr Brusch suggested the answers for him, just to get through it quickly.
Mr Brusch refuted the rushed circumstances of this meeting, although he conceded a bushfire was burning at Kinglake, and that a bushfire alert had been issued for the area where he lived; but he said he expressed no anxiety about rushing home, believing the fire was some distance from his home. He supported his contention that he did not rush back home after the meeting by presenting evidence of the time and place of telephone calls he made from his mobile.
I accept that Mr Brusch did not rush home as he suggested he would to Mr Van Camp, but I do not accept, as he suggests, that the meeting was not rushed. He agreed that the meeting lasted 45 minutes – in my view, having regard to the amount of new documentation presented and the need to ensure sufficient time for it to be read and understood, as was the acknowledged desired practice of the respondent, such an admitted short time in any event fell far short of an appropriate time. From the evidence of Ms Paravicini the procedure employed by the respondent is designed to allow a prospective franchisee time to study documentation provided in a sequential way and to obtain advice when appropriate, over a period of time which affords the best opportunity of properly reading, and properly understanding all the documents. In the context of this case, the usual practise in this regard, for some of the documentation, was not afford to Mr Van Camp when he was pressed to sign documentation on 27 January 2007
I don’t accept, however, that it was as much as 45 minutes. Mr Van Camp believed it to be much shorter.
Mr Van Camp’s recollection, in my view, is consistent with the day’s event (ie a bushfire near Mr Brusch’s home). Mr Van Camp’s knowledge of the fire and Mr Brusch’s home location was passed to him by Mr Brusch. The account given by Mr Van Camp has all the hallmarks of an accurate account and is consistent. For reasons set out both above and below, I do not find Mr Brusch a truthful witness and where there is inconsistency between the two over the events on 27 January 2006, I have no hesitation in accepting Mr Van Camp’s evidence as truthful and accurate.
It has to be said, however, that some of the documentation (agreement to enter into a franchise agreement and disclosure statement) signed on 27 January 2006 had been sent to Mr Van Camp in December 2005 and he had an opportunity, which he appears not to have availed himself of, to read this material at his leisure. Mr Van Camp says, however, that he did not expect to have to sign all the documentation, which included more than that which had been sent to him, in front of Mr Brusch that day. He came to pay a $10,000 deposit. It came as a surprise to him and he felt hurried by Mr Brusch to sign those documents and others presented for the first time. He was prepared to sign, however, because of the trust he had in Mr Brusch, his then belief in the standing and credulity of the respondent, and the suitability of the site as represented to him. Mr Brusch was then considered by Mr Van Camp like “my best friend”. I am satisfied that Mr Van Camp had no real understanding of what he was signing on this day and did so at the direction and insistence of Mr Brusch who was anxious to get it all done so he could, on the face of it, attend to significant and urgent matters at home. Because of the rushed circumstances, the involvement of Mr Brusch in taking over the process and answering questions on behalf of Mr Van Camp, ticking boxes and suggesting the wording for other answers, the acknowledgements in those documents, in my view, are of limited probative value.
I note that Mr Brusch agreed he ticked off the Foodco Prospective Franchise questionnaire. He said it was his normal practice to do it himself. Should it be his normal practice, then it is a highly undesirable practice in terms of protecting his employer.
I also note that when questioned about the circumstances of the Foodco Prospective Franchisee document being completed, Mr Brusch’s answers were qualified and conjectural in nature, and had the character of reconstruction – as, indeed, all of his evidence about the events of 27 January 2006 did.
Mr Van Camp as at 27 January 2006, I am satisfied, was committed and, indeed, had received an invoice for $74,000. Subsequent signing of similar acknowledgements on 23 March 2006 (to cater for the change to a corporate purchaser) or 20 June 2006 do not alter the situation unless proven that the representations as to takings and the suitability of the site were no longer operating in the mind of the applicant as an inducement. I am satisfied that those representations were still operative as inducements to the applicant to enter into the franchise and licence agreements.
Accounting and legal advice
I am satisfied Mr Van Camp sought both legal and accounting advice as evidenced by acknowledgements to that effect from his lawyer and accountant submitted, as required, to the respondent.
I am satisfied further that the legal advice was simply to the effect that there was little that could be done to alter any of the documentation – that it was the usual sort of agreement franchisors had with franchisees. Similarly, I accept that the advice from the accountant was to the effect that as there were no trading figures to consider, because it was a new site, there was little by way of advice that could be offered. He sought the accountant’s advice because it was demanded of him by the respondent, but having regard to the representations made, Mr Van Camp believed such advice unnecessary.
The respondent suggests that should there have been representations made as alleged about projected sales, then the legal advice should have canvassed this. Further, the accountant should have been made aware of the projected figures. Neither of the two expert advisers to Mr Van Camp was called and I was asked to draw an adverse inference that should they have been called, they would not have supported Mr Van Camp by informing the court that they were ever made aware of the representation about projected sales figures. The respondent says I can infer they were unaware of the representation about projected sales because there was none.
In that regard, I am satisfied that Mr Van Camp did not tell his experts about the representation about projected sales or the “uniqueness” of the site. His evidence was to that effect. However, I am not persuaded that leads to the conclusion I have been asked to reach. I am satisfied that Mr Van Camp, perhaps unwisely, believed it unnecessary to inform them of the representations, so confident was he in the merit of them and the unchallengeable prospect in his mind that he was going to do very well with such a franchise. The getting of advice from the lawyer and the accountant was a procedural process asked of by the respondent that he was made to endure to get approval for the franchise - admittedly, a naïve, and unwise approach. It was an approach, however, not unreasonably induced in Mr Van Camp because of those pivotal representations made by Mr Brusch on 30 November 2005; namely, the projected sales and the fact the respondent had done its research and believed the site at Forest Hill Chase was a suitable site.
Further, when Mr Van Camp was asked whether he had done an independent inquiry as to the suitability of the site and the risks involved, he responded by saying he did not have to as Mr Brusch had given him the estimates of what it would earn. I am satisfied that this was Mr Van Camp’s approach to these issues, an approach induced and later reinforced by representations made by Mr Brusch about projected sales and to this degree it can be clearly said he relied on them and was induced into proceeding with the purchase.
The failure to call witnesses
In support of the respondent’s general, primary contention that no representation were made as alleged, the respondent highlighted the failure of the applicant to call a number of witnesses, who, had they been called, the respondent asked me to infer, they would not have supported Mr Van Camp’s allegations about the representation about projected takings. Those witnesses were Mr Van Camp’s father, the accountant and lawyer employed by Mr Van Camp, and Mr Brian, the ban representative. I was asked to form the view that had they been called they would not have been able to give corroborative evidence of Mr Van Camp telling them about the projected sales. It followed, in the view of the respondent, that had Mr Van Camp not told them of the projected sales, then I could conclude that no representation was made by Mr Brusch as alleged. It is to be noted that Mr Van Camp admits readily not telling his accountant, his lawyer and Mr Brain about the representation. What he says, in effect, in regard to his non telling of the representation is that he believed it unnecessary, so persuade was he about the representation that their knowledge of it was unnecessary. He offers no explanation for not calling his father other than he did not think he needed to. Whilst there is the potential to draw the inference, to do so in the face of my otherwise confident assessment of Mr Van Camp as a truthful and accurate witness would be contrary to all other aspects of the evidence. I find it is highly probable the representation was made as alleged.
A minor issue
There was an issue between Mr Van Camp and Mr Brusch over how the price of the coffee was set. Whilst it does not touch on significant issues in the case, it does go to the question of credit. Mr Van Camp said Mr Brusch set the price, whereas Mr Brusch said it was left to Mr Van Camp. Later Mr Brusch was critical of the high level set for the price of coffee. I have no hesitation, after hearing from the parties, in finding that the high price was set by Mr Van Camp at the insistence of Mr Brusch who wished to maintain parity with the pricing at another outlet. Again, in my view, this is another example where Mr Brusch’s lack of credit and duplicity was exposed.
Need for a franchisee
I am satisfied as the new operations/development manager, as a first indicator to his employer of his worthiness for his new role, Mr Brusch was anxious to ensure a franchisee was found as soon as practicable for the FHC site and that as Mr Van Camp came to him via a contact from a director of the respondent, he was to ensure Mr Van Camp became the franchisee of the FHC site.
The space allocated for the FHC site had been unoccupied for some time and the respondent was paying rent on it. The respondent had been looking for a franchisee for the site since 27 May 2005 and had become responsible for the payment of rent from 8 October 2005. I am satisfied that there was pressure on the respondent, in particular on Mr Brusch, to obtain a franchisee for this site as soon as practicable in order to stop the otherwise unproductive haemorrhaging of rent. Mr Brusch denies this, but I do not accept his denial. The commercial reality dictated that a rent paying franchisee be found as soon as practicable. To the extent that Mr Brusch and Mr Infanti denied this commercial reality, their credit was compromised; although it must be acknowledged, Mr Infanti reluctantly agreed that this situation was “less than optimal”.
Mr Brusch’s evidence that he was not aware of the respondent’s obligation to pay rent on the site is not credible. He had visited the site on his own and with another prospective franchisee in September 2005. Mr Infant’s evidence was to the effect he would have expected Mr Brusch to be aware of this reality and that it was evident from the site file in Mr Brusch’s keeping, which had the lease details, that rent was due and being paid on the site. For Mr Brusch to feign ignorance of this, as he did, belies his credibility, particularly where he put in the details of the rent expense in the pro forma expenses statement produced on 30 November 2005.
Unreasonableness of the representation about projected sales
The unreasonableness about the representation of projected sales figures is manifest when the actual sales are examined. I am more that satisfied Mr Van Camp applied himself to the task of establishing a successful franchise at Forest Hill Chase, employing as he did not only his physical, emotional and financial resources, but also the advice and guidance offered by the respondent. The end result was failure. The sales produced by the applicant were far short of those projected by Mr Brusch.
Although, as stated above, Mr Brusch attempted to set the scene with contrived diary notes designed to assist in a conclusion that the failure might reasonably be attributed to Mr Van Camp’s inability to apply himself as required (and that his veracity was questionable), the evidence would suggest otherwise. The explanation for it would appear more consistent with Mr Bernardi’s assessment of the site, an expert called by the applicant on the question of the suitability of the site.
The only conclusion that can be reached, based upon the experience to date of the site, is that the representation made as to projected sales by Mr Brusch was unreasonable.
The suitability of the site
Mr Infanti’s evidence touched on two issues. The first was whether he said the FHC site was an “unique opportunity”, and the second as to whether the FHC site was a suitable site for a Muffin Break franchise.
Whilst Mr Infanti presented reasonably well, his evidence in my view was equivocal and not persuasive on the question of what was said when Mr Van Camp first made contact with him. Where there is conflicted between him and Mr Van Camp on this issue, on balance, I prefer Mr Van Camp’s evidence.
In relation to Mr Infanti’s evidence on how the FHC was chosen as a suitable site, a significant player in that process was not called. Mr Nick Vlahos, the then Development Manager, and Mr Brusch’s predecessor, was said by Mr Infanti to have assessed the FHC site for suitability and he discussed it with him by way of providing assistance and review of his selection. No evidence was provided by Mr Vlahos as to how he went about assessing the site as suitable. There was no record of any process or policy applied by the respondent used to determine suitability in general, and certainly none in the particular about the FHC site. Mr Infanti stated, when assessing the suitability of this site that he applied his “general knowledge” and that there was no specific analysis of the site by him. I was not persuaded by Mr Infanti that he applied the analysis described by Mr Buckingham, the respondent’s expert who made comparisons between the FHC site and the nearby shopping centre, The Glenn.
Mr Infanti appeared to adopt the process employed after the event by the respondent’s expert, Mr Buckingham. I am not, on balance, convinced it was an exercise followed by Mr Infanti when assessing the suitability of the site in the first instance. In any event, should I have been persuade Mr Infanti did as he said, that is, made a comparison of nearby shopping centres comparing their moving annual turn over, I am far from persuade it was an analysis that showed much depth and formed a foundation that would justify and support the representation made by Mr Brusch that “Muffin Break has done its homework to ensure the site is a unique site” or “this is a ripper of a site”, which representations, as stated above, I find were made by Mr Brusch.
Mr Infanti’s selection process for this site is not supported by file notes or contemporaneous documents. Essentially it did not go beyond looking at the performance of Muffin Break franchises in centres which had a comparable moving annual turnover; although for reasons shown by Mr Bernardi, the applicant’s expert, to be inappropriate, he included stores in Darwin and Cairns as comparators.
Mr Infanti conceded that there was no demographic analysis carried out, either quantitative or qualitative. Having said that, however, it has to be conceded that it is very difficult and beyond the capability of any retailer to carry out or obtain quantitative statistical demographic analysis of a specific centre because of the almost universal practice of shopping centre owners to refuse such intrusive undertakings, and because of their concern, in any event, to maintain, for commercial reasons, the confidentiality of such research.
Be that as it may, significantly, when Mr Infanti did look at Muffin Break franchises in the area, if he indeed did, he failed to look at, or take into consideration, one that was only 3 kms away which had failed; that is, the one in Whitehorse Plaza. He sought to discount this site as not relevant to an evaluation, but there were similarities with the FHC site that warranted evaluation in a more considered way than was done.
Although a quantitative assessment of the demographic that shopped at the Forest Hill Chase Shopping Centre was not possible, it certainly was open to a qualitative assessment as to its suitability by examining the nature of the major tenants (at the time they were stores catering for the lower socio-economic demographic, as opposed to The Glenn that cater for the higher end of the market), the competition from other coffee providers, and the location of the site within the centre. Mr Bernardi did all of that and concluded it was not a suitable site. Admittedly, it was an assessment greatly assisted by hindsight, but it nonetheless is confirmed by the poor performance of the site despite Mr Van Camp’s best endeavours, and also those who followed. Again this qualitative assessment is given credulity by the fact the site has recently began making profit because of a significant change of the tenant mix when two major retailers, Myer and Target have established themselves there. It is very evident that the respondent did not undertake the assessment believed by Mr Bernardi to have been appropriate and which, had it been done, Mr Bernardi believed would have concluded the site was not suitable for a Muffin Break franchise, or at the very least, was one where one could not speak with confidence as to its suitability. Mr Bernardi evidence was persuasive and I accept it. From it, the only conclusion that can be reached is that the respondent did not undertake a reasonable and necessary evaluation that would have justified the representations about the site as being an “unique opportunity”, or that the respondent “had done its homework” and it was “a unique site”. Both comments about the site in my view are misleading, and from the mouth of Mr Brusch, deceptive. There was no evidence presented that Mr Brusch was aware of any “homework” having been done, there was no evidence in writing of an evaluative process having been undertaken and of which Mr Brusch had been made aware. Of course, Mr Brusch simply denies the statement was made, but I don’t accept his denial.
Conversely, Mr Buckingham’s evidence on behalf of the respondent I found unpersuasive and lacked the qualitative analysis of the site itself that I believe was necessary before a representation could be made about its suitability.
Reasonableness about the representation of the suitability of the site
In the circumstances, in respect of the FHC site, I find that Mr Infanti could not have, nor did he have, a reasonable belief that the FHC site was suitable for the operation of the franchise. Further, Mr Brusch could not have, nor did have a reasonable belief as to the suitability of the site. There is no factual basis for the representations about the suitability of the site.
The legal framework and the submissions
The respondent contends that to say representations were made about projected sales and that the respondent engaged in misleading and deceptive conduct would be to ignore all written documents. The whole scheme of the documents, if read correctly, would put a prospective franchisee on notice.
The respondent asserts that Mr Van Camp did not act reasonably in his dealings with the respondent, particularly when regard is had to what was required of him; namely, the seeking of expert advice as to the risks of business, accounting and legal advice and the careful reading of the documentation that highlighted the acknowledgements as to representations. The respondent highlights the observations of his Honour Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199
“Although it is true, as has often been said, that ordinarily a class of consumers may include the inexperienced as well as the experienced, and the gullible as well as the astute, the section must in my opinion be regarded as contemplating the effect of the conduct on reasonable members of the class. The heavy burdens which the section creates cannot have been intended to be imposed for the benefit o persons who fail to take reasonable care of their own interests. What is reasonable will of course depend on all the circumstances.”
The respondent also relies on the observations of his Honour Gummow J in Elders Trustee and Executor Company Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 at 247 when he said “section 52 is not designed for the benefit of a person who fails to take reasonable care of his own interests.”
The conclusion asked to be drawn by the respondent is that first, no representations were made as evidenced by the acknowledgements and for other incidental reasons covered above, but, in any event, the respondent should not be bound by them in circumstances where Mr Van Camp has not acted reasonably having regard to the clear direction given in the documentation that he seek and availed himself of, by fully informing his experts of the representations, the advice available to him.
The respondent drew a parallel with the facts of this case and that in Poulet Frais Pty & Anor v The Silver Fox Company (2005) 220 ALR 211. In that case, figures were provided by the franchisor of trading figures by other franchise outlets, but care was taken in the documentation to stipulate that the prospective franchisee in that case could not, in effect, rely on this as being indicative of what would be generated at the subject site.
The distinction, however, between the Poulet Frais case and this case is simply that I find Mr Brusch did, indeed, make the representation that the applicant could expect the sales projected in the pro forma expense statement and that representation constitutes misleading and deceptive conduct contrary to s.52 of the Act.
Again, the respondent relies on Poulet Frais as supportive of the proposition that the representation and warranty that the site was suitable because the respondent, through Mr Infanti’s analysis of the site, in the circumstances, was a reasonable assessment of the suitability of the suit. Again, for the reasons set out, I am not persuaded he did not engage in an appropriate analysis as to suitability.
The applicant relies primarily on s.52 of the Act as the legal basis for its claim for compensation. Although S.52 imposes strict liability (see Butcher v Lachlan Elders Realty Pty Ltd (2004) 218 CLR 592) and whilst it is a provision designed to protect the consumer, it is not designed to protect the extraordinary gullible and foolish. This is because the conduct relevantly would not be misleading and deceptive if it is only misleading and deceptive to the extraordinary gullible or foolish person.
That said, a party who makes a misleading or deceptive misrepresentation cannot obliterate its effect or escape the consequences of making those statements by subsequently incorporating in documents which are executed in reliance upon that misleading and deceptive representation an acknowledgement or a disclaimer.
The cases of Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No1) 79 ALR 83 (Henjo Investments) and Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608 both stand for the legal principle that in determining whether conduct has been engaged in contrary to s.52 of the Act, the Court must consider the conduct as a whole and determine whether in all of the circumstances the conduct is regarded as misleading or deceptive; that it is not necessary and it is, indeed, artificial to require the identification of a specific representation.
The applicant argues that it was induced by, and relied upon, more than one representation (i.e. sales projections, suitability of the site, that respondent would do the right thing because of a “special” relationship). An applicant is permitted to rely upon or to have been induced by more than one representation. (See Henjo Investments; Gould v Vaggelas (1985) 62 ALR 527 and Sykes v Reserve Bank of Australia (1998) 158 ALR 710)
The respondent relies heavily on the subsequent signing by Mr Van Camp of an acknowledgment that no representations were made. However, Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 at 371 stands for the principle that such an acknowledgment does not constitute a bar to any successful claim that misleading or deceptive representations were made, but is merely a matter which must be considered in determining whether the relevant conduct as a whole can be regarded as misleading and deceptive. His Honour Sheppard J. in that case at 371 observed:
“The remedy conferred by s.52 of the Trade Practices Act will not be lost, whatever the parties may provide in their agreement. If the vendor of goods has engaged in misleading or deceptive conduct, the law makes that person accountable for loss and damage suffered as a result of the unlawful conduct. That conduct will usually have been committed, as in this case, prior to the signing of any contract. If, as a result of the conduct, a person is induced to enter into a contract and suffers loss, an action to recover it lies. The terms of the contract are irrelevant.”
His Honour Wilcox J. in Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 at 378 stated:
“Whatever may be the effect of cl 19 [the exemption clause in that case] in relation to an action brought in contract, in which reliance is placed upon an alleged warranty or condition not included in the contract of sale, that clause should not be allowed to defeat a claim based upon s.52. To permit such a clause to defeat such a claim would be to accept the possibility that a vendor might exacerbate his deception, as by actively misleading a purchaser as to the existence or nature of such an exclusion, and thereby ensure that he would escape liability.”
In Oraka Pty Ltd v Leda Holdings Ltd (1997) ATPR 41-558 at 43-717 his Honour Burchett J. stated:
“It cannot be thought that the very agreement that was obtained by a misrepresentation can be made good by incorporating in it a further misrepresentation falsely asserting that it was not procured by the means which were in fact employed. The agreement that so speaks to sustain itself was obtained by misrepresentation and no verbal magic of an added clause can change that.”
This principle is not limited to agreements that were induced through deliberate misrepresentations. It also extends to any agreement which purports to excuse a party from liability for a contravention of s.52. (See IOOF Australia Trustees (NSW) Ltd v Tandipech (1998) ATPR 41-652)
The primary position of the respondent is that there were no representations as alleged. It relies on the evidence of its witnesses and on the acknowledgement clauses in documentation signed by Mr Van Camp as proof of that fact. For the reasons set out above, I am satisfied on the balance of probabilities that the representations were made. That being so, however, is not the end of the matter. The respondent then made submissions of the legal effect of the acknowledgment clauses.
The High Court in Butchers Case drew the distinction between oral representations and written representations. Both Poulet Frais and Butcher’s case related to written representations. Contrary to the respondent’s submission, Poulet Frais was not a case which bears a striking similarity of the facts of this case, except to the extent it concerned a franchise and involved an alleged representation about takings. The representation in Poulet Frais was written. There the trial judge found when all the documents were interpreted, there was an implied representation that if the franchisee did certain things he could expect sales as represented. What the appeal court said in Poulet Frais was, when you look at the documents as a whole, which included disclaimers, you cannot read out of that documentation, taken as a whole, the representation that the trial judge found.
In my view, neither Butcher’s case or Poulet Frais deal with the facts of this case; namely with an allegation of an oral representation which induced Mr Van Camp to sign the documents which he did. It cannot be acceptable that the very agreement that was obtained by a misrepresentation can be made good by incorporating in it a further misrepresentation falsely asserting that it was not procured by the means which were in fact employed. See Waltip Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) ATPR 40-975 where his Honour Pincus J held that clauses in a deed of acknowledgement, providing that no precontractual statements had been made relied upon before the parties entered a lease, were of no effect if the facts were to the contrary.
The applicant also relies on s.51A of the Act which provides that where a representation is made as to any future matter and where there are no reasonable grounds for making that representation, the representation shall be taken as misleading. The findings set out above, which, in summary, conclude that Mr Brusch represented the likely sales Mr Van Camp could expect to receive on a week by week basis, reaching a target of $11,000 - $12,000 per week after 3 months, was, indeed, a representation made without any reasonable ground.
Conclusion
The respondent itself was, and remains, very aware of the potential for misrepresentation or deception by a practice of projecting sales to a prospective franchisee; hence the evidence of Mr Brusch, and Ms Kennedy about the respondent’s established practise of not giving sales projections In response to that concern, the respondent includes acknowledgements about such representations. This is all predicated on the understanding that any such projections have serious consequences for they have the potential to expose the respondent to adverse claims.
In my view, the nature of the representations, taken as a whole, were capable of distorting the judgment of Mr Van Camp and distracting him, and indeed, any reasonable man in the circumstances, from the significance of the acknowledgements executed by him on behalf of the applicant.
In any event, the signing of questionnaire and Foodco Prospective Franchise document with its acknowledgements in the circumstance they were on 27 January 2006 does not lead to the inference as suggested by the respondent that no representations were made along the lines alleged. These documents signed, as I am satisfied, in rushed circumstances are of limited probative value and do not buttress the general contention of the respondent that the representations alleged were never made.
For the reasons set out above, I am of the view the respondent, through its employee, Mr Brusch engaged in misleading and deceptive conduct in breach of ss. 51A and 52 of the Act when it made representations about the projected sales figures. That was a representation made in the lead up to the signing of the franchise and licence agreements. I am further satisfied that, to a significant degree, Mr Van Camp relied on the sales projection figures to assuage any concerns he may otherwise have had, or might otherwise be reasonably engendered, and was induced into a belief that the FHC site was truly “a unique site” at which he could be assured, by inference, of success.
One can reasonably expect a prospective franchisee to rely on representations made about likely takings when determining whether or not to enter into an agreement to purchase a franchise. There has been no evidence led by the respondents that they had reasonable grounds for the making of that representation in those terms because, first, they deny it was made and secondly, the subsequent financial performance of the FHC site would suggest, of itself, that the representation as to likely takings was not reasonably made.
In addition, for the reasons set out above, I am satisfied that the site was unreasonably represented as suitable. The unreasonableness of that representation stems from the lack application of a proper process of evaluation.
In the circumstances set out, the applicant was entitled to rescind the franchise and licence agreements ab initio and is therefore entitled to be put back into the position it enjoyed prior to the agreements.
Quantum
The evidence of loss was provided by Mr Sincock of Deloitte. The quantum of the applicant’s claim I find, after certain concessions were made by the applicant, to be:
(a) capital investment $276,263.30
(b) interest outstanding on loan facility
(as at 31 Aug 2007) $ 20,629.49
(c) interest on loan facility
from1 Sept 07 to 26 March 2008 $ to be calculated
(d) operating losses $ 19,677.52
Total$316,570.31 plus interest
Accordingly, there shall be an order that the respondent pay the applicant the sum of $316,570.31, plus interest on the loan facility from 1 September 2007 to 28 March 2008, plus the costs of and incidental to the proceeding.
I certify that the preceding one - hundred and ten (110) paragraphs are a true copy of the reasons for judgment of O'Dwyer FM
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