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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2016] SASC 161
Decision Date: 7 October 2016

CaseChat Overview and Summary

The plaintiff, a Chinese citizen with permanent residency in Australia, appeals the liquidator's decision to reject his proof of debt under section 1321 of the Corporations Act 2001 (Cth). The plaintiff had entered into a franchise agreement with HACCP Cleaning Australia Pty Ltd, a commercial cleaning business, for operating an HACCP Cleaning franchise. The plaintiff sought to recover the franchise fees paid under the agreement but was denied by the liquidator, leading to this appeal.

The court was required to determine whether the plaintiff had established any cause of action against HACCP Cleaning that would entitle him to recover the franchise fees. The plaintiff argued that HACCP Cleaning failed to provide additional contracts as promised, but the court found that the franchise agreement did not impose such an obligation on the franchisor. Additionally, the evidence did not support a claim for additional work, as the plaintiff only made a single request for more contracts without any resulting agreement.

The court concluded that the plaintiff had not established any cause of action against HACCP Cleaning. Therefore, the plaintiff was not entitled to recover the franchise fees or any damages. The court dismissed the plaintiff's appeal, affirming the liquidator's decision.

No further orders were made by the court.

Orders

Orders of the court

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Background

Background to the litigation

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.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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.

Ratio Decidendi

Legal Principle Established

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