FEDERAL COURT OF AUSTRALIA
Watt v Shepherd (No 2) [2021] FCA 826
File number(s): NSD 922 of 2019 Judgment of: RARES J Date of judgment: 23 July 2021 Catchwords: COMPETITION AND CONSUMER LAW – misleading and deceptive conduct – default judgment under r 5.23 of Federal Court Rules 2011 – unconscionable conduct – accessorial liability – inducement and reliance – unfair tactics – where Competition and Consumer (Industry Codes – Franchising) Regulation 2014 applied – where respondents made multiple misleading and deceptive representations to principal applicant – where respondents intended representations would induce principal applicant to invest and participate in franchising structure and influence other applicants to become franchisees – where representations were as to finance, future matters and profitability of franchise – where respondents lacked reasonable grounds for representations as to future matters – where respondents knew that principal applicant was in a position to influence other proprietors – where respondents knew fees payable by franchisees were not affordable or financially sustainable for franchisees – where respondents failed to make good earlier representations – where respondents failed to prepare or provide franchisees with disclosure documents, or receive from franchisees statement as to independent advice under cl 10 of Code – whether failure to provide documents required by the Code exposed franchisees to situation of vulnerability and disadvantage which was unconscionable conduct – representations made in trade or commerce within meaning of Competition and Consumer Act 2010 (Cth) and Australian Consumer Law – held: representations were misleading and deceptive (ss 18, 21 of the ACL); representations constituted unfair tactics and unconscionable conduct (ss 22(1)(g) and 22(2)(g) of the ACL); first, second and third respondents accessorially liable; franchise agreements voided; default judgment for damages to be assessed (ss 82, 87 of the CC Act and ss 236, 237 and 243 of the ACL) Legislation: Australian Consumer Law ss 4, 18, 21, 22, 22A, 236, 237, 243
Competition and Consumer (Industry Codes – Franchising) Regulation 2014 reg 4, cll 5, 6, 8, 9, 10
Competition and Consumer Act 2010 (Cth) ss 51ACB, 75B, 82, 87
Federal Court of Australia Act 1976 (Cth) ss 35P, 37M
Federal Court Rules 2011 rr 1.40, 5.23, 16.07
Trade Practices Act1974 (Cth) ss 51AC, 51D
Cases cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175
Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1
Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303
Giorgianni v The Queen (1985) 156 CLR 473
Gore v Australian Securities and Investments Commission (2017) 249 FCR 167
Gould v Vaggelas (1983) 157 CLR 215
Jonval Builders Pty Ltd v Commissioner for Fair Trading (2020) 104 NSWLR 1
Master Education Services Pty v Ketchell (2008) 236 CLR 101
Rafferty v Madgwicks (2012) 203 FCR 1
Watt v Shepherd [2021] FCA 561
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Regulator…
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- AGLC
- Watt v Shepherd (No 2) [2021] FCA 826
- Case
- [2021] FCA 826
- Decision Date
CaseChat Overview and Summary
The court had to decide whether the respondents' conduct constituted misleading and deceptive conduct, unfair tactics, and unconscionable behaviour under the ACL, as well as whether the respondents were accessorially liable. Additionally, the court needed to determine whether the respondents' failure to provide disclosure documents constituted unconscionable conduct. The court also had to decide on the appropriate remedy, specifically whether the franchise agreements should be voided from a specific date or ab initio.
The court found that the respondents' representations were misleading and deceptive, constituting unfair tactics and unconscionable conduct. The court held that the respondents were accessorially liable and granted default judgment for damages to be assessed. The court declared the franchise agreements void from 30 June 2018, ordered the return of the website and business name to the applicants, and granted leave to file further evidence on damages and relief. Costs were reserved.
The court's decision was based on the respondents' failure to comply with orders, the unconscionability of their conduct, and the applicability of the relevant statutory provisions. The court noted that both the CCA and ACL provided the authority to void the franchise agreements, and the appropriate remedy was to void the agreements from 30 June 2018, ensuring the applicants' interests were protected while preserving the court's case management powers.
Orders
Orders of the court
1. It be declared that the whole of each of the contracts between the fourth respondent and:
(a) the first applicant and the third applicant;
(b) the first applicant, the fourth applicant and the fifth applicant;
(c) the first applicant and fourth applicant;
(d) the fourth applicant and sixth applicant;
(e) the first applicant and sixth applicant;
(f) the first applicant;
(g) the first applicant and seventh applicant;
be void on and from 30 June 2018.
2. The third respondent do all things necessary on its part to be done:
(a) to assign to the first applicant the ownership, including sole administrator rights, of the website ‘bushchemist.com.au’;
(b) to place the first applicant in the position of registered owner of the business name ‘Bush Chemist’.
3. There be judgment against each of the respondents for damages to be assessed.
4. Leave be granted to the applicants to file and serve any further evidence on which they propose to rely in relation to damages and appropriate relief, together with written submissions limited to five pages, on or before 13 August 2021.
5. Leave be granted to the respondents to file and serve any further evidence on which they propose to rely in relation to damages and appropriate relief, together with written submissions limited to five pages, on or before 3 September 2021.
6. Costs be reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
The respondents contended that the franchise agreements should be declared void ab initio under s 243(a) of the ACL or s 87(2)(a) of the CC Act. They submitted that this would be the only appropriate remedy because it would undo the whole of the transaction and reverse all of the consequences of any misleading or unconscionable conduct. They argued that there was no proper basis to grant the applicants the relief sought orally on 8 July 2021 of avoiding the franchise agreements from 30 June 2018.Consideration In my opinion, the respondents’ argument that the power under r 5.23(2) can only be exercised on application by a party is misconceived. Rule 1.40 provides that the Court, at any stage in a proceeding, may exercise a power mentioned in the Rules on its own initiative or on the application of a party. The Rules have been drafted on the basis that the Court is in control of the case management of proceedings. That construction of the Rules is consistent with Pt VB of the Federal Court Act, the analogues of which were construed in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 and Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303. Importantly, s 37P(5) and (6) provide that if a party fails to comply with a direction given by the Court, the Court can make such order or direction it thinks appropriate and, in particular, can strike out, amend or limit any part of a party’s defence and award costs, including on an indemnity basis. Moreover, those provisions do not affect the other powers that the Court has to deal with a party’s failure to comply with a direction (s 37P(7)). Nonetheless, there is some force in the respondents’ complaint that, on 30 June 2021, the applicant provided draft orders, together with their latest submissions and evidence, but those did not specify any date from which they sought that the franchising agreements be voided under s 243(a) of the ACL (or s 87(2)(a) of the CC Act). However, both sides have been able to fully argue that matter and no prejudice has been occasioned to the respondents by doing so. I do not consider that the applicants have been treated any more favourably than the respondents who, as I noted in my earlier reasons, themselves have had numerous extensions of time in which to serve their outlines of evidence. But, even when the hearing was to take place on 20 May 2021 concerning whether their defence and cross-claim ought be struck out because of their continuing default in complying with orders to serve those outlines, the respondents still had not remedied that position, many months after the original orders had been made and they did not provide any adequate explanation for their default. The purpose that the applicants were seeking to achieve by the use of the inadmissible affidavits as to quantum was slightly different. That was to avoid a hearing to assess damages by trying to utilise a quicker path home. True it is, they failed in that endeavour and that exercise has taken time and expense, which can be compensated by costs. But it remains to be seen whether, in fact, the latest attempt at quantification, albeit that I have rejected its admissibility here, is ultimately established at a hearing to assess damages.