Wang v HACCP Cleaning Australia Pty Ltd - [2016] SASC 161

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
WANG v HACCP CLEANING AUSTRALIA PTY LTD & ORS
[2016] SASC 161
Judgment of The Honourable Justice Doyle
7 October 2016
CORPORATIONS - WINDING UP - LIQUIDATORS - APPEAL FROM LIQUIDATORS' DECISIONS
Appeal against Liquidator’s rejection of proof of debt pursuant to s 1321 of the Corporations Act 2001 (Cth).
In April 2009, the plaintiff entered into a franchise agreement for the provision of cleaning services with the first defendant, HACCP Cleaning Australia Pty Ltd (HACCP Cleaning). By virtue of the franchise agreement the defendant contracted to provide cleaning services to two clients. By March 2011 the cleaning contracts for both clients were terminated on account of the plaintiff’s poor performance. The plaintiff did not receive further cleaning contracts under the franchise agreement.
In January 2012, HACCP Cleaning went into liquidation. In March 2012, the plaintiff lodged a proof of debt with Mr Powell (the third defendant), as liquidator of HACCP Cleaning. The proof of debt claimed an amount of $28,228.90. The claim included $23,500 by way of a refund of franchise fees paid by the plaintiff.
By notice dated 31 July 2013, Mr Powell partially allowed the proof of debt as to an amount of $1,301.67 but otherwise rejected the proof of debt.
In this appeal against the rejection of his proof, the plaintiff relied on five claims or causes of actions, namely that HACCP Cleaning:
1.       represented that the plaintiff would be guaranteed income under the franchise agreement;
2.       breached the franchise agreement entered into with the plaintiff;
3.       breached the Franchising Code of Conduct;
4.       acted unconscionably; and
5.       engaged in churning and was unjustly enriched.
Held per Doyle J, dismissing the appeal:
1.       The plaintiff did not establish any of the claims or causes of action alleged.
2.       The plaintiff did not establish any entitlement to recovery of the franchise fees paid by him.
3.       Even if a cause of action had been made out, the evidence did not identify any loss suffered, or otherwise permit any assessment of damages.
Corporations Act 2001 (Cth) s 1321; Trade Practices Act 1974 (Cth) ss 51AD, 52, referred to.
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101; Watson v Foxman (1995) 49 NSWLR 315, discussed.
De Bortoli Wines Pty Ltd v HIH Insurance Limited (2011) 84 ACSR 527; Re Galaxy Media Pty Ltd (2001) 39 ACSR 483; Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332; Westpac Banking Corporation v Totterdell (1997) 25 ACSR 769, considered.

WANG v HACCP CLEANING AUSTRALIA PTY LTD & ORS
[2016] SASC 161
Civil
DOYLE J:

In April 2009, the plaintiff entered into a franchise agreement with the first defendant, HACCP Cleaning Australia Pty Ltd (HACCP Cleaning). Under that franchise agreement, the plaintiff provided cleaning services to A Noble & Sons and the Bath Hotel until late 2010 and early 2011 respectively. After the loss of those two cleaning contracts the plaintiff did not receive any further cleaning work under his franchise.
In January 2012, HACCP Cleaning went into liquidation. The third defendant (Mr Powell) was appointed liquidator of HACCP Cleaning. He subsequently became the Administrator, and then the Deed Administrator of the Deed of Company Arrangement to which that company became subject.
In March 2012, the plaintiff lodged a proof of debt with Mr Powell, as liquidator of HACCP Cleaning. The proof of debt claimed an amount of $28,228.90. This included a claim for $23,500 by way of refund of the franchise fees paid by the plaintiff.
By notice dated 31 July 2013, Mr Powell partially allowed the proof of debt as to an amount of $1,301.67, but otherwise rejected the proof of debt.
In these proceedings the plaintiff appeals Mr Powell’s rejection of his proof, pursuant to s 1321 of the Corporations Act 2001 (Cth).
General background
The plaintiff is a Chinese citizen with permanent residency in Australia. He moved to Australia in November 2007. He speaks fluent Mandarin Chinese. He also has a basic command of the English language.
Prior to moving to Australia the plaintiff had undertaken tertiary study in both China and Germany. He obtained Bachelor and Masters degrees in Environmental Engineering and an MBA. Since moving to Australia the plaintiff has undertaken a PhD in Environmental Engineering, which he completed in 2015.
When he first arrived in Australia, the plaintiff commenced work in a Chinese massage studio. He then operated his own studio for a short period, before entering into the cleaning franchise the subject of these proceedings.
Since 1997 HACCP Cleaning has operated a commercial cleaning business based in Adelaide. It was established by Craige Galloway under a different name. In May 2007, Peter Aiello and Alexis Sandoval contributed funds to the company, and became directors. The company changed its name to its present name.
In February 2009, Nabil Khouzam contributed funds to the company and also became a director. HACCP Cleaning began expanding beyond the Adelaide market and taking on cleaning contracts interstate. Mr Galloway resigned as a director on 22 July 2009, but Mr Aiello, Mr Sandoval and Mr Khouzam remained directors.
In April 2009, the plaintiff and Mr Khouzam met to discuss the possibility of the plaintiff taking on a franchise of the HACCP Cleaning business. On 23 April 2009 the plaintiff and Mr Khouzam (on behalf of HACCP Cleaning) executed a document entitled ‘HACCP Cleaning Australian Franchise Agreement’ (the Franchise Agreement). Accompanying this document was a disclosure document prepared on behalf of HACCP Cleaning (the Disclosure Document). The plaintiff and Mr Khouzam executed that second document on 23 April 2009.
The Franchise Agreement gave the plaintiff the right to operate an HACCP Cleaning business, in accordance with what was described as the HACCP Cleaning Australia System (the System). The System, and the standards and procedures it contemplated, were described in an Operations Manual, a copy of which was provided to the plaintiff. The term of the Franchise Agreement was 10 years.
The Franchise Agreement envisaged that the plaintiff, as franchisee, would provide cleaning services, using the System, through contracts to be specified in a schedule to the Franchise Agreement. It also provided for the franchisee to submit new sites to the franchisor for quoting. However, the prospective clients could only be approached with the approval of the franchisor, and the franchisor could also offer suggestions about proposed approaches. The franchisee was entitled to purchase new business from the franchisor at the rate of 30 per cent of annualised turnover, with those purchased contracts then becoming part of the franchise business.
The Franchise Agreement required that the franchisee pay a franchise fee constituted by an initial fee of $5,000 (90 per cent refundable), together with monthly deductions from the franchisees’ income “per the schedule”. While no schedule was produced at the hearing, it is common ground that the fees payable by the franchisee were essentially 30 per cent of the annual turnover of any cleaning contracts provided under the Franchise Agreement.
The Franchise Agreement required that the franchisor provide the franchisee (and employees) with training, uniforms and cleaning equipment and supplies.
The Franchise Agreement also included many standard clauses, including a provision to the effect that the Franchise Agreement was an entire agreement, and acknowledgments by the franchisee to the following effect:
·    He has conducted an independent investigation of the business contemplated by the Franchise Agreement, and recognises that it involves business risks.
·    He has not received or relied upon, any warranty or guarantee, express or implied, as to the potential volume, profits or success of the business venture contemplated by the Franchise Agreement.
·    He has no knowledge of any representations by the franchisor about the business.
·    He has received and read the Franchise Agreement, and the franchisor has adequately and fully explained the provisions to his satisfaction, with the franchisee having had the opportunity to meet with the franchisor, ask questions and receive answers about the franchise.
·    He has carefully read and understands the terms of the Franchise Agreement, and to the extent necessary has discussed its requirements and other applicable limitations with his counsel.
·    He, together with his advisors, has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of an investment in a HACCP Cleaning Australian business and making an informed investment decision in respect thereto.
·    He is aware that other franchisees may operate under different forms of agreement, and obligations and rights under those agreements may differ materially.
·    He has received all information in relation to financial matters to which he has requested access.
The Disclosure Document commenced with the following introductory matters:
This disclosure document contains some of the information you need in order to make an informed decision about whether to enter into a franchise agreement.
Entering into a franchise agreement is a serious undertaking.
A franchise agreement is legally binding on you if you sign it.
You are entitled to a waiting period of 14 days before you enter into this agreement.
If this agreement is a new franchise agreement (not a renewal, extension or transfer of an agreement), you will be entitled to a 7-day ‘cooling-off’ period after signing the agreement, during which you may terminate the agreement.
If you decide to terminate the agreement during the cooling-off period, the franchisor must, with 14 days, return all payments (whether of money or of other valuable consideration) made by you to the franchisor under the agreement. However, the franchisor may deduct from this amount the franchisor’s reasonable expenses, if the expenses or their method of calculation have been set out in the agreement.
Take your time, read all the 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 agreement.
It is often prudent to prepare a business plan and projections for profit and cash flow.
You should also consider education courses, particularly if you have not operated a business before.
The Disclosure Document included reference to franchise fees in the amount of an initial sum of $5,000 (90 per cent refundable if cooling off is exercised), plus 27 per cent[1] of the annual turnover of franchised contracts. It also referred to cleaning contracts being signed for a two year period. It stated that a copy of the Franchise Code was attached.
[1] While nothing turns on the difference between this figure and the 30 per cent referred to by both parties during the hearing, it may be that the difference is attributable to GST.
The plaintiff was provided with two cleaning contracts under the Franchise Agreement. The first was for the Bath Hotel, which commenced in May 2009. The second was for a business called A Noble & Sons, which commenced in September 2009. The plaintiff was provided with a document setting out the basic terms of the Bath Hotel contract at the time of entry in the Franchise Agreement. He was provided with the A Noble & Sons contract a few months later, prior to the commencement of that contract in September 2009.
The plaintiff serviced these two cleaning contracts without any significant issues arising for a period of time. However, during 2010 some performance issues began to emerge. In late August 2010 the plaintiff received a written warning from HACCP Cleaning (described as a third warning) in relation to the A Noble & Sons contract. The warning recorded a complaint by the client that the standard of cleaning had dropped over the past six months, and that the client was not prepared to pay for the work done in August 2010. The warning referred to the plaintiff having received training from the former Operations Manager, Mark Hemsley, but thereafter the standard dropping. The warning also noted that the plaintiff’s response was to the effect that he believed there was no problem.
On 13 September 2010, the plaintiff received a text message from an employee of HACCP Cleaning, Senad Debraske, telling him to return the keys to the officers of A Noble & Sons that day. That was the end of the A Noble & Sons contract from the plaintiff’s perspective.
Approximately six months later, by email dated 16 March 2011 from the director of the Bath Hotel (and two other hotels cleaned by other HACCP Cleaning franchisees), the cleaning contract for the Bath Hotel (and the contracts for those other two hotels) was cancelled with immediate effect. The plaintiff queried the circumstances of this cancellation, and was told in an email from Mr Khouzam that he had been observed by the client “engrossed in some very unhygienic practices on many occasions”, with the result that Mr Khouzam was too embarrassed even to ring the client to ask for the money owed to HACCP Cleaning by the client.
While the Franchise Agreement was not formally terminated, the plaintiff did not obtain any further cleaning contracts under his franchise.
The franchisor, HACCP Cleaning, went into liquidation in January 2012.
The proof of debt
The plaintiff lodged a proof of debt with Mr Powell, as liquidator of HACCP Cleaning, dated 30 March 2012. The proof of debt claimed that HACCP Cleaning was indebted to the plaintiff in the amount of $28,228.90. This figure was broken down as follows:
·    Four payments for the Bath Hotel contract totalling $15,800.
·    Two payments for the A Noble & Sons contract totalling $7,700.
·    Three amounts of GST withheld by HACCP Cleaning in relation to the Bath Hotel contract, totalling $1,066.80.
·    An amount withheld by HACCP Cleaning for services under the A Noble & Sons contract of $553.10.
·    Court and solicitors fees of $597.
·    Interest at five per cent over two years totalling $2,512.
While broken down in this way, the proof of debt stated that the “claim arises from proceedings brought in Magistrates Court Action No. ELCCI-11-9304 by Mr Zhiang Wang against the Company for various breaches as per the attached Amended Statement of Claim marked A.”
The attached statement of claim, apparently filed in the Magistrates Court in 2011, made various complaints against HACCP Cleaning. They were pleaded in very general and discursive terms, but may be summarised as follows:
1.   Income guarantee. The claim alleged that HACCP Cleaning represented to the plaintiff that “he would be guaranteed an income for 3 years verbally and subsequently [2] years for the Bath Hotel and 2 years Noble and Sons in the contract itself”. It was pleaded that the plaintiff relied upon this representation and that it was false.
2.   Breaches of the Franchise Agreement. The claim alleged breaches of the obligations under the Franchise Agreement to provide the plaintiff with training, uniforms, meetings and office support.
3.   Breaches of the Franchising Code of Conduct. The claim alleged that in breach of that Code, HACCP Cleaning (i) never provided the plaintiff with a copy of the Code; (ii) never required the plaintiff to obtain independent legal advice or provide HACCP Cleaning with a signed statement either that he had done so or had chosen not to do so; and (iii) failed to give the plaintiff an opportunity to remedy his breach, or give reasonable notice of, or precise reasons for, the termination.
4.   Unconscionability. The claim alleged that the Franchise Agreement and HACCP Cleaning’s conduct was unconscionable, relying upon the plaintiff’s limited English, together with the fact that he was not advised to obtain independent legal advice or an interpreter prior to signing the Franchise Agreement.
5.   Churning and unjust enrichment. The claim alleged that HACCP Cleaning received franchise fees from the plaintiff under the two contracts, but then on sold at least one of the contracts soon afterwards “thereby doubling its money unjustly”. It also alleged that HACCP Cleaning claimed that it was unable to find any replacement contract for the plaintiff yet failed to refund the plaintiff’s money.
The statement of claim then alleged that by reason of the above matters, the plaintiff suffered loss and damage, being the fees he paid for the franchise, plus interest on that sum and costs. The claim also alleged that the Franchise Agreement should be rescinded or set aside based on the above allegations.
By a document entitled “notice of partial rejection of formal proof” and dated 31 July 2013, Mr Powell rejected the proof of debt save as to an amount of $1,301.67.
The reasons given for substantially rejecting the proof were as follows:
1.   Your claim against the Company set out in your formal proof of debt or claim made on 30 March 2012 has been allowed in the sum of $1,301.67, and disallowed for the balance of $26,927.26.
2.   My grounds of disallowance of your claim are as follows:
·    The records provided by both yourself and the Company do not show an income guarantee as part of your contract;
·    The directors of the Company have advised that you were dismissed by both of your clients due to the poor quality of your cleaning. From the facts in your statement of claim submitted with your proof of debt, you received sufficient training as required under ‘Item VII Training’ of your franchise agreement. Further, I note that you were provided with the ‘HACCP Cleaning Division Operations Manual’ which clearly sets out the required cleaning procedures;
·    Pursuant to ‘Item III New Business’ of your franchise agreement, it is the responsibility of yourself as the Franchisee to submit to the Franchisor proposals for quoting new business. From the records provided, it appears that you have failed to seek approval from the Company to approach new clients to continue operating your HACCP Cleaning Australia Franchise, despite continuing to operate your franchise for almost a year after losing your first client;
·    The Company’s records reveal that you received payments totalling $123,746 from the Company during the period June 2009 to October 2011 in relation to your franchise. As such, you have not suffered a loss in relation to the purchase of your franchise, and your claims in relation to the refund of your franchise fee in your proof of debt totalling $23,500 are disallowed; and
·    Consequently, your claim for interest and costs totalling $3,109 are also disallowed.
The notice went on to state that the proof was allowed to the extent of $1,301.67. This was comprised of the total of the three amounts of GST withheld ($1,066.83[2]) plus $234.84 in respect of the amount claimed as withheld under the A Noble & Sons contract.
[2] There is a discrepancy of three cents between the amount allowed and the amount claimed, which can be ignored.
The plaintiff has not made any submission in support of the rejection of his proof of debt in relation to the balance of $318.26 claimed for monies withheld or under-paid under the A Noble & Sons contract, or for the amounts claimed by way of court and solicitor fees and interest. The dispute on this appeal focused upon Mr Powell’s rejection of the $23,500 claimed by way of franchise fees.
Principles governing an appeal from a liquidator’s rejection of a proof of debt

The function of the Court on an appeal under s 1321 of the Corporations Act from a liquidator’s rejection of a proof of debt is to hear the matter de novo.[3] The Court’s task is to bring to bear a proper rigour in reviewing all the relevant facts in their context, and to determine whether indeed the debt should have been admitted or rejected, applying legal principle to those facts afresh.[4] In other words, the Court considers for itself whether the liability referred to in the proof of debt is a true liability of the company and enforceable against it.[5] In so doing, the Court may receive fresh evidence from the parties, and have regard to material not before the liquidator.[6]
[3]    Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 340-341; Westpac Banking Corporation v Totterdell (1997) 25 ACSR 769 at 772; Re Galaxy Media Pty Ltd (2001) 39 ACSR 483 at [24]; De Bortoli Wines Pty Ltd v HIH Insurance Limited (2011) 84 ACSR 527 at [25].
[4]    Re Galaxy Media Pty Ltd (2001) 39 ACSR 483 at [24].
[5]    Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 341.
[6]    Westpac Banking Corporation v Totterdell (1997) 25 ACSR 769 at 772; De Bortoli Wines Pty Ltd v HIH Insurance Limited (2011) 84 ACSR 527 at [25].
There is no need to show error on the part of the liquidator, meaning that the liquidator’s reasons for his decision are not relevant, save for any forensic use they might have in identifying and analysing objections that might be made to the proof of debt.[7] The onus is on the party challenging the liquidator’s decision to establish facts that enable the proof of debt to be allowed.[8] The Court will not upset the decision of the liquidator unless properly satisfied that that onus has been discharged.[9]
[7]    De Bortoli Wines Pty Ltd v HIH Insurance Limited (2011) 84 ACSR 527 at [25].
[8]    ReGalaxy Media Pty Ltd (2001) 39 ACSR 483 at [26], [33].
[9]    ReGalaxy Media Pty Ltd (2001) 39 ACSR 483 at [33].
The hearing
The plaintiff represented himself on the hearing of the appeal. He was assisted by an interpreter.
The plaintiff sought to rely upon various affidavits he filed. However, because the affidavits consisted of significant passages of inadmissible material, I permitted him to give oral evidence in support of his appeal. He gave oral evidence, assisted by an interpreter. He was cross-examined by counsel for Mr Powell. The plaintiff also called evidence from Mr Huang, a former cleaner of the Bath Hotel who provided the plaintiff with some training.
Mr Powell gave evidence and was cross-examined. He also called evidence from two directors of HACCP Cleaning, Mr Khouzam and Mr Sandoval. They were both cross-examined.
I am satisfied that each of Mr Huang, Mr Powell, Mr Khouzam and Mr Sandoval were honest and generally reliable witnesses.
As for the plaintiff, there were some aspects of his evidence that I do not consider reliable. The most significant incidence of this unreliability was in his account of his conversation with Mr Khouzam prior to entry into the Franchise Agreement, particularly in relation to the income guarantee. On that issue, I prefer the evidence of Mr Khouzam over the plaintiff. Mr Khouzam was not only more clear and impressive in his manner of giving evidence, but also his account was more inherently plausible, consistent with his usual practice in relation to other franchisees and the overall dealings between the plaintiff and HACCP Cleaning. It appeared to me that the plaintiff’s evidence on this topic involved a significant level of reconstruction on his part. The other area of dispute in the evidence is the difference between the plaintiff and Mr Sandoval in relation to the training provided to the plaintiff in relation to the Bath Hotel cleaning contract. I prefer the evidence of Mr Sandoval on this issue.
In summary, while I accept that the plaintiff’s evidence was generally honest, I do not accept that his recollection of the detail was always reliable. Where his evidence differed from that of Mr Khouzam or Mr Sandoval, I prefer the evidence of the latter two men.
The plaintiff’s claim to recover franchise fees
For the reasons that follow, I do not consider that the plaintiff has established any of the five heads of claim articulated in the statement of claim attached to his proof of debt.
However, even if I am wrong about that, a further fundamental difficulty confronting the plaintiff on this appeal is that even if made out, none of those claims will entitle the plaintiff to recovery of the franchise fees. While some of the claims, if made out, might ordinarily have entitled the plaintiff to some award of damages, this is of no assistance to the plaintiff on this appeal for two reasons. First, such damages would not be in the amount of the franchise fees, which is what the proof of debt claims. Secondly, even if it were permissible for the plaintiff to now formulate a claim in damages for some different amount, he has neither done so nor adduced any evidence that would enable me to undertake an assessment of damages. While a court will often be forced to do the best it can with limited information when assessing a claim for damages, there are limits to the ability of the Court to do so, or the appropriateness of it attempting to do so. In a case such as the present, where the Court has been left with no evidential basis at all for assessing damages, it is neither possible nor appropriate to attempt to do so. To do so would be to resort to guess work.
The income guarantee
The plaintiff alleges that he was given an income guarantee. The manner and terms in which that guarantee is said to have been provided is not entirely clear.
As mentioned, in the statement of claim attached to his proof of debt, the plaintiff claimed that HACCP Cleaning represented to him that “he would be guaranteed an income for 3 years verbally and subsequently [2] years for the Bath Hotel and 2 years Noble and Sons in the contract itself”.
Insofar as the plaintiff maintains a claim based upon a written income guarantee of two years, the basis for this guarantee was never identified. The Disclosure Document refers to any forecast or prediction of earnings provided to the franchisee being based upon “2 year fixed price contracts with customers” and to customer contracts being “signed for 2 years”. The plaintiff did not give any evidence that he relied upon these references. In any event, they are not income guarantees. They are statements or explanations of an assumption said to underpin any earnings forecast or projections given to a franchisee, but in circumstances where there is no evidence of any such forecast or projections being given. There is no merit in the claim based upon a written income guarantee.
The plaintiff’s claim that he was given a verbal guarantee was based upon his evidence of a conversation he had with Mr Khouzam prior to entry into the Franchise Agreement. Both the plaintiff and Mr Khouzam gave evidence as to this conversation. It is understandable that neither was able to remember the conversation with any precision, given that it occurred in April 2009 and hence over seven years ago.
While the plaintiff purported to recall being given an income guarantee, his evidence was lacking in precision as to the terms of the guarantee. The plaintiff’s evidence was that the words “income guarantee” were used. When pressed as to the substance or content of the words used to describe the guarantee, the plaintiff said Mr Khouzam said that if he (the plaintiff) lost any contracts in the first three years, then HACCP Cleaning would provide the plaintiff with a contract for a similar amount.
Mr Khouzam, on the other hand, was adamant that he did not use the words “income guarantee”, and did not otherwise give any form of income guarantee. He did recall the plaintiff asking a question to the effect “how long do I have income?” Mr Khouzam said that his response, consistent with his practice in relation to all franchisees, was to the effect that for as long as the plaintiff performed to the satisfaction of the clients, and met the required standards, he would have the cleaning job; but if he did not meet these requirements then they would both lose the client. He said that the plaintiff appeared to understand what he was told, and said that he would be the best operator that HACCP Cleaning had.
When considering a claim based upon an oral representation, it is important that the Court have a sufficient evidential foundation for finding that a particular representation was made. As McClelland CJ said in Watson v Foxman:[10]
Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, construed. All this is a matter of ordinary human experience.
[10] Watson v Foxman (1995) 49 NSWLR 315 at 318-319.
As I have mentioned, I was satisfied as to the honesty and general reliability of Mr Khouzam as a witness. On the other hand, it seemed to me that in giving evidence on this topic the plaintiff was reconstructing, perhaps based on assumptions that he had made, or information that he had (or has subsequently received) from other franchisees whom he believes received varying forms of income guarantees.
Whatever the reason, I am not satisfied that the plaintiff’s evidence was sufficiently reliable, or precise, to enable me to find that any income guarantee was given to the plaintiff by HACCP Cleaning through Mr Khouzam. While there may well have been some discussion as to the circumstances and likelihood of continued work under the Franchise Agreement, I am not satisfied that Mr Khouzam made any particular statement in the nature of an income guarantee. While not determinative, it is relevant in this context that the Franchise Agreement included a provision to the effect that the franchisor disclaimed making, and the franchisee acknowledged he had not received or relied upon, any guarantee as to the potential volume, profits or success of the business venture contemplated by the Franchise Agreement.
Even if the plaintiff had established some statement or representation in the form of an income guarantee, the plaintiff has not made out any cause of action or entitlement to relief flowing from that representation.
If a representation was made by Mr Khouzam, I do not think it was likely to have had contractual force. In circumstances where an agreement is the subject of detailed written terms (including an ‘entire agreement’ clause) the Courts are usually reticent to conclude that a pre-contractual statement was objectively intended to have contractual force. I do not consider that there is any basis for imputing an objective intention to the parties in this case that any pre-contractual statement by Mr Khouzam was intended to have contractual force.
Insofar as the statement is relied upon as a representation, it would have been a representation as to the future. It is not clear to me that any such representation was false at the time it was made. If, as Mr Khouzam said in his evidence, any statements about the income likely to be earned by the plaintiff were qualified by reference to the plaintiff performing to the client’s satisfaction, or to a particular standard, then he likely had a reasonable basis for any such statement. Further, to the extent it is relevant, I accept the evidence adduced by the liquidator to the effect that both contracts were terminated by reason of the respective client’s concerns about the quality of the plaintiff’s cleaning work.
Finally in relation to this aspect of the plaintiff’s claim, even if the Court were otherwise satisfied that the plaintiff relied upon some false representation in the form of an income guarantee when he entered into the Franchise Agreement, the plaintiff simply did not address what loss or other relief might flow. I do not think it would be appropriate in that circumstance to order rescission of the Franchise Agreement. The Franchise Agreement has been substantially performed, and the plaintiff received substantial income (in the order of $120,000) under the cleaning contracts that he serviced. Nor would it be appropriate for me to embark upon an assessment of damages. There is simply no evidence from which I might assess any loss suffered by the plaintiff. All I know is that the plaintiff paid some $23,500 in franchise fees, carried out significant cleaning work with the assistance of at least one employee, and received about $120,000 in income from the cleaning contracts he serviced. It is not obvious that the plaintiff suffered any loss at all, let alone loss that I am in a position to quantify.
Breaches of the Franchise Agreement
In the statement of claim attached to his proof of debt, the plaintiff alleged breaches of HACCP Cleaning’s obligations under the Franchise Agreement to provide him with training, uniforms, meetings and office support.
The focus of the plaintiff’s evidence on the appeal in support of this head of claim was his allegation that he did not receive the training he was entitled to under the Franchise Agreement.
The provisions in the Franchise Agreement in relation to training were relatively general. The plaintiff relies upon clause VII of the Franchise Agreement.[11] Clause VII entitled a franchisee to designate up to two individuals to receive pre-operational training from the franchisor. The Franchise Agreement did not specify what the contemplated pre-operational training was to involve, although the balance of the clause appears to contemplate that the training take place at some training location maintained by the franchisor. While there is no evidence of any such training location maintained by the franchisor, at the same time there is also no evidence that the plaintiff ever designated any person to receive, or otherwise requested, the contemplated training.
[11] There is also a general reference to the availability of training in clause IV of the Franchise Agreement.
In any event, the plaintiff’s complaint, as articulated on appeal, was not a failure to receive the general training that this clause of the Franchise Agreement appears to contemplate. His evidence was that the work required to clean in conformity with the System was relatively obvious, and explained in the Manual that he was provided. Rather, his complaint was that he did not receive appropriate training specific to the two cleaning contracts that he was provided. He complains that he received only limited “on the job” or “handover” training from a previous cleaner in respect of both the Bath Hotel and A Noble & Sons contracts.
There was a dispute in the evidence as to the extent of the on the job training provided to the plaintiff. The plaintiff’s evidence was that he received some training from a former cleaner at the commencement of his work under each of the Bath Hotel and A Noble & Sons contracts. The plaintiff’s evidence in respect of the Bath Hotel was corroborated by the evidence given by Mr Huang. I see no reason to doubt this evidence. However, the plaintiff denied being given any other training, other than an acknowledgement that Mr Sandoval was present on the first day of his work under the Bath Hotel contract.
Mr Sandoval, on the other hand, gave evidence that he personally provided the plaintiff with significant on the job training in respect of the Bath Hotel contract. He described the way he went about the training, and the interaction with the client to ensure its needs were being met. Mr Sandoval was not able to be precise about the extent or duration of the training, beyond a general recollection that it continued for about a month, with it involving several hours each day over the first week or two and then being more intermittent over the balance of the month. He recalled the plaintiff being a relatively fast learner.
As mentioned, I accept the evidence of Mr Sandoval on this issue. I therefore find that the plaintiff was given on the job training in relation to the Bath Hotel contract by Mr Sandoval in addition to the training he was given by Mr Huang.
In relation to the subsequent contract with A Noble & Sons, the defendant’s evidence is less clear. Mr Sandoval said the plaintiff would have received training in addition provided by the former cleaner (Mr Robinson); and that the training would have been provided by the relevant area supervisor, being either Mr Hemsley or Mr Debraske. However, Mr Sandoval was not personally involved in that training and so his evidence was based merely upon HACCP Cleaning’s usual practice in relation to new or changed contractual arrangements. In relation to the A Noble & Sons contract, the evidence does not enable me to make a finding that the plaintiff was provided further training in addition to the training provided by the former cleaner, Mr Robinson.
On the findings I have made, I am not satisfied that the plaintiff has established any inadequacy in the training provided, let alone a breach of the Franchise Agreement to provide training. Indeed, even if the training had been (as the plaintiff contended) confined to training by previous cleaners, I do not consider that this of itself rendered the training inadequate, let alone in breach of the Franchise Agreement.
Further, and in any event, the evidence does not establish any identifiable loss that flowed from any inadequacy in the training received by the plaintiff.
To the extent that the plaintiff suggests that inadequate training is what led to the loss of the contracts with the Bath Hotel and/or A Noble & Sons, there was again no evidential foundation for this. To the contrary, the fact that the plaintiff successfully serviced these contracts for a lengthy period of time suggests that the later complaints about the quality of his cleaning work were not the product of any inadequacy in his training at the outset.
In my view, the plaintiff has not made out any claim based upon inadequate training.
Insofar as the allegations based upon the lack of uniform, meetings and office support are concerned, they do not appear to have been maintained by the plaintiff. Certainly there was no evidence adduced on the appeal to suggest that any failure in respect of these matters was causative of any loss. There is no basis or evidence to suggest that the absence of a uniform was of any consequence in this case. So far as meetings were concerned, while there was no formal regime of meetings, the plaintiff had a line of communication with, and relatively easy access to, the management personnel within HACCP Cleaning. He was also provided with office support by HACCP Cleaning in the sense that he was provided with the accounting and administrative support that he needed to service his two cleaning contracts. There is no allegation or evidence from the plaintiff as to any particular difficulty that he encountered in terms of obtaining access to HACCP Cleaning personnel, or appropriate office support. There is no merit in any claimed based upon the lack of uniform, meetings or office support.
Breaches of the Franchising Code of Conduct

The Franchising Code of Conduct as at 2009 required (clause 10), inter alia, that a franchisor provide a franchisee with a copy of the Code, the Disclosure Document and the Franchise Agreement at least 14 days prior to entry into the Franchise Agreement, or making a non-refundable payment in connection with the franchise. It also required (clause 11) that the franchisor not enter into a Franchise Agreement unless it has received from the franchisee a written statement that the franchisee has received, read and had a reasonable opportunity to understand the Disclosure Document and the Code, and a signed statement to the effect that the franchisee has been given advice about the Franchise Agreement or business by an independent legal advisor, business advisor or accountant, or that he has been told that sort of advice should be sought but has decided not to seek it.
The plaintiff claims that in breach of the Code, HACCP Cleaning (i) never provided the plaintiff with a copy of the Code; (ii) never required the plaintiff to obtain independent legal advice or provide the HACCP Cleaning with a signed statement either that he had done so or had chosen not to do so; and (iii) failed to give the plaintiff an opportunity to remedy his breach, or give reasonable notice of, or precise reasons for, the termination.
I find that Mr Khouzam did provide the plaintiff with a copy of the Code. Mr Khouzam’s evidence was that, in accordance with his standard practice, at his meeting with the plaintiff prior to 23 April 2009, he provided the plaintiff with each of the Franchise Agreement, the Disclosure Document and the Code. The plaintiff acknowledged receiving the first two of these documents. While he does not recall receiving a copy of the Code, he did not go as far as positively denying this. I accept Mr Khouzam’s evidence on this issue. It is consistent with the reference in the Disclosure Document to the Code being attached.
However, I find that there was a breach of the Code in that these documents were not provided to the plaintiff 14 days prior to entry into the contract. On the evidence of the plaintiff and Mr Khouzam, it appears that the documents were provided only about three or four days, or perhaps a few more days, prior to entry into the Franchise Agreement.
As for the allegation in relation to the obtaining of legal advice, I accept the evidence of Mr Khouzam that when he first met with the plaintiff to discuss the franchise, he not only provided him with the relevant documentation, but also suggested that he “go away, consider them and get some advice”.
While the plaintiff denied any recollection that words to this effect were said, he accepted that he did have at least a three to four day opportunity to consider the documents prior to him signing them.
As outlined earlier, those documents contained various warnings and acknowledgments in relation to the nature of the risks involved, the information the plaintiff had received or had an opportunity to obtain, and the importance of obtaining advice. In particular, the Franchise Agreement (ultimately signed by the plaintiff) contained acknowledgements not only that the plaintiff understood the documentation, but also that he had to the extent necessary discussed its requirements and other applicable limitations with his counsel; and that he and his advisors had sufficient knowledge and experience in financial and business matters to be capable of evaluating, and making an informed investment decision in relation to, the investment in the HACCP Cleaning business. Also, not only did the Disclosure Document contain references to the plaintiff being entitled to a 14 day waiting period, and a seven day cooling off period, but it also reiterated the need for the plaintiff to read the documents and make his own enquiries.
The plaintiff’s evidence was that while he had an opportunity to read the documentation, and indeed did so, he was not able to understand them very well. While I accept that the plaintiff was not likely to have understood some of the detail of the documentation, I am satisfied that he had a reasonable understanding of the general nature of the business arrangement he entered into, and, perhaps more importantly, made a concscious decision not to seek any information or advice beyond what he was provided by Mr Khouzam. True it is that the plaintiff had been in Australia for less than two years when he signed the Franchise Agreement and Disclosure Document, and he had (and still has) a far from perfect command of the English language. However, the plaintiff is an intelligent and educated man. He had some, albeit limited, business dealings in Australia prior to entry into the present Franchise Agreement. His discussions with Mr Khouzam prior to entry into the Franchise Agreement were in English. While accepting the plaintiff’s English was limited, Mr Khouzam’s observation was that the plaintiff was able to communicate in English, albeit in a fairly direct and short manner; and that he was able to understand what he was being told, and make himself understood. That evidence accords with my own observations of the plaintiff during the course of this trial, even taking into account the significant period of time that has passed since the plaintiff’s dealings with Mr Khouzam. Bearing in mind all of the evidence I have in relation to communications by and with the plaintiff at the time, I am satisfied that his English was sufficient to give him a general understanding of the nature and contents of the documentation he signed, and of the business venture that he was embarking upon.
Drawing the above threads together, HACCP Cleaning did fail to comply with some aspects of the Code. While there was at least a three to four day gap between receiving the documents and executing them, and the plaintiff was informed through the Disclosure Document that he was entitled to a 14 day waiting period, the requirement that the franchisee be provided the documents 14 days prior to entry into the Franchise Agreement was not complied with. Further, while the documentation contained warnings and acknowledgments in relation to the receipt of advice (including references to having had the opportunity to obtain advice from “counsel”), this fell short of the requirements of clause 11.
However, in the circumstances I have described, I do not consider that the plaintiff has established that the breaches entitle him to recovery of the franchise fees paid by him, or any equivalent monetary remedy.
In Master Education Services Pty Ltd v Ketchell,[12] the High Court explained that even though a breach of the Code was a breach of “an applicable industry Code” for the purposes of s 51AD of the Trade Practices Act 1974 (Cth), this did not result in the relevant Franchise Agreement being void, or illegal and unenforceable at common law. It follows that there is no obvious basis for the plaintiff to recover the franchise fees paid under the Franchise Agreement. While the Trade Practices Act did make other relief potentially available to the plaintiff, the plaintiff has not identified any other relief he might be entitled to and on what basis. In the circumstances I have outlined – including not only the relatively minor or technical nature of the established breaches of the Code, but also the fact that the plaintiff successfully operated his franchise for almost two years and generated income of approximately $120,000 – it is not clear to me that the plaintiff would be entitled to any relief.
[12] Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101.
The plaintiff also claimed a breach of the Code on account of the lack of any reasonable notice, or opportunity to remedy his breach, prior to termination of his Franchise Agreement. While the Code did proscribe termination of a Franchise Agreement without notice and without opportunity to remedy any breach relied upon by the franchisor, the primary difficulty for the plaintiff here is that the Franchise Agreement was not terminated. The Bath Hotel and A Noble & Sons terminated their contracts for the provision of cleaning services that were provided by the plaintiff, but this did not bring the plaintiff’s Franchise Agreement to an end. The plaintiff did not receive from the franchisor (and did not himself submit for approval by the franchisor) any further cleaning contracts under the Franchise Agreement. But it was not terminated. It remained on foot until HACCP Cleaning went into liquidation in early 2012.
It follows that this third allegation of a breach of the Code has not been established. That said, even if it had been established, it is again not apparent to me how this would entitle the plaintiff to the relief sought. No basis for this relief has been established.
Unconscionability
The plaintiff’s allegation of unconscionability was left entirely vague, and, in my view, unsubstantiated. The allegation was never articulated with any detail beyond that contained in the statement of claim attached to the plaintiff’s proof of debt, namely that HACCP Cleaning’s conduct was unconscionable given the plaintiff’s limited English, together with the fact that he was not advised to obtain independent legal advice or an interpreter prior to signing the Franchise Agreement.
It was never specified whether the plaintiff was intending to rely upon general law unconscionability, or unconscionability under the Trade Practices Act. In my view, regardless of the species of unconscionability that the plaintiff intended to invoke, it has not been established. I have outlined above the evidence in relation to the plaintiff’s language skills and opportunity to seek advice. I do not consider that the evidence goes as far as establishing that the plaintiff was labouring under a special disadvantage of the nature required as a matter of general law. It was not established that the plaintiff’s limited command of English left him unable to make a judgment as to his own best interests.[13] Further, and in any event, I do not accept that the plaintiff has identified or established any knowledge or conduct by or on behalf of HACCP Cleaning that involved any unconscientious taking advantage of any relative vulnerability or weakness on the part of the plaintiff. In my view, Mr Khouzam was entitled to proceed on the basis he did, namely that the plaintiff had a general understanding as to the nature and effect of the information provided by him, and of the business venture upon which he was embarking.
[13] Commonwealth Bank of Australia Ltd v Amadio (1983) 151 CLR 447at 462.
In the above circumstances, the claim of unconscionability must fail.
Churning and unjust enrichment
The claim intended to be advanced by the plaintiff under this heading is difficult to pin down. The thrust of the plaintiff’s complaint appears to be a belief or assertion on his part that after he had lost the Bath Hotel and A Noble & Sons contracts, HACCP Cleaning sold one or more of these contract, thereby “doubling its money unjustly”.
I remain unclear as to the precise cause of action sought to be relied upon by the plaintiff. However, I do not consider it necessary to dwell on that because the plaintiff has failed to establish the factual premise for his claim.
The plaintiff did not adduce any evidence to suggest that either the Bath Hotel contract or the A Noble & Sons contract was in fact sold by HACCP Cleaning, or otherwise taken over by anyone with the knowledge or approval of HACCP Cleaning. While it appeared from some of the questions asked by the plaintiff in his cross-examination of Mr Khouzam and Mr Sandoval that he believed, for example, that the A Noble & Sons contract was subsequently serviced by an HACCP Cleaning employee, Mr Deblaske, and his wife, there was no evidence of this. Both Mr Khouzam and Mr Sandoval flatly denied that HACCP Cleaning sold, or otherwise had any subsequent involvement in, the Bath Hotel and A Noble & Sons contracts. They were both adamant that when the plaintiff lost these contracts, HACCP Cleaning also lost those contracts. I accept the evidence of Mr Khouzam and Mr Sandoval.
At times the plaintiff appeared to press an additional claim under this heading to the effect that HACCP Cleaning failed to find any replacement contract for the plaintiff. Again, the precise legal basis for this claim was never made clear. While Mr Khouzam may have given some indication prior to entry into the Franchise Agreement that further contracts might be available, the contract does not impose any obligation on HACCP Cleaning in this respect. In addition to the legal difficulty with the claim, there is again also not a sufficient factual foundation for this claim, or for any award of damages. The evidence does not go further than a single request by the plaintiff for additional work, which did not result in any additional contract then being made available. I do not think this is sufficient to make out a claim, let alone one that would result in an entitlement to a return of the franchise fees paid by the plaintiff, or otherwise sound in damages that I am in a position to assess.
Conclusion
For the reasons I have set out, the plaintiff’s appeal must fail. He has not established any cause of action against HACCP Cleaning. He has therefore not established an entitlement to recover the franchise fees sought to be recovered in his proof of debt, nor indeed any entitlement to any damages or other monetary award.
I dismiss the plaintiff’s appeal.