FEDERAL COURT OF AUSTRALIA

Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellants pay the respondents’ costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

THE COURT:

1    In the proceedings before the primary judge, the appellants claimed declarations and damages under ss 82 and 87 of the Trade Practices Act 1974 (Cth) arising out of their purchase of two franchises to conduct recruitment businesses in the Gold Coast in Queensland.

2    Julianne Stariha, the third appellant, owned and controlled each of the other two appellants, Julstar Pty Ltd and Semolina Pty Ltd. In late August 2005, Mrs Stariha commenced employment with the first respondent, Hart Trading Pty Ltd. That company was controlled by Colleen Hart, the second respondent. Hart Trading was a retail recruitment business operating as a franchisee of Frontline Recruitment Group Pty Ltd, the third respondent, whose managing director was Peter Davis, the fourth respondent.

3    The appellants had contended that they had suffered loss and damage principally because, relevantly:

    Hart Trading and Mrs Hart had made numerous misleading or deceptive representations to Mrs Stariha between 4 October 2006 and 3 November 2006, on which Mrs Stariha and, through her, Julstar, had relied in deciding to purchase a Frontline franchise business for placement of retail industry staff on the Gold Coast from Hart Trading; and

    Frontline and Mr Davis had made misleading or deceptive representations, in November 2006, to Mrs Stariha, first, concerning the prospects of Julstar operating that business successfully, the value of that business and its client base and, secondly, by failing to comply with the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) (the Franchising Code).

4    The primary judge dismissed the proceedings against all four respondents. His Honour found that none of the representations alleged, if made, was misleading or deceptive and rejected the other bases on which the appellants had relied to establish the liability of each respondent. The primary judge’s reasons dealt with two substantive topics, after giving an introduction to the issues at trial. The first, was a detailed recitation of the varying accounts of the major witnesses that spanned about 175 pages. The second, was his Honour’s more tersely reasoned 12 pages for his findings of fact and conclusions that the appellants’ claims failed.

5    The appellants did not appeal against his Honour’s rejection of their claims in respect of the Semolina transaction. The Semolina claims were against Frontline and Mr Davis. Those claims concerned representations that Frontline and Mr Davis allegedly made in the period between June 2007 and September 2007, on which Mrs Stariha and Semolina had relied in purchasing a Frontline franchise business for placement of hospitality industry staff from Frontline, relating to the prospects of Semolina operating that business successfully and the provision of training to Mrs Stariha in respect of that business.

6    The gravamen of the appellants’ extant 20 grounds of appeal against the primary judge’s findings of fact is their contention that his Honour’s reasons for resolving the factual contest on virtually every matter at trial did not sufficiently link his findings to the evidence. This was because, the appellants argued, but did not include as a ground of appeal, there had been a delay of 21 months between the time that his Honour saw and heard the witnesses, including 19 months since final addresses, and the delivery of his lengthy reasons. Although the grounds of appeal are numerous, they were distilled by the appellants in the course of argument. The grounds challenged 20 findings, many of which were related, on the basis that, in substance, they were against the evidence or the weight of the evidence. The appellants abandoned ground 19 during the course of the hearing of the appeal.

7    We will summarise the significant findings and factual evidence before briefly explaining the appellants’ arguments. We will then deal with the grounds of appeal grouped in the order in which the parties argued them. This will require us to say something more about the facts in discussing our reasons because of the nature of the appellants’ challenges to the findings below.

The contest below

8    A previous Frontline franchisee, Ellis Trading Pty Ltd, conducted by Karen Ellis, operated a Frontline franchise office at Southport on the Gold Coast in 2003 and 2004 as well as a Brisbane office. Ellis Trading had employed Mrs Hart. His Honour found that Ellis Trading’s profit and loss statements disclosed that it had made operating profits before tax for the years ended 30 June 2003 and 2004 of $48,485 and $19,594 respectively, after paying wages totalling about $31,500 and $115,000 to K and D Ellis in the respective years. In early July 2005, Ms Ellis had sold her business that included both the Brisbane and the Gold Coast Frontline Franchise territories, to Mrs Hart for $320,000.

9    Mrs Stariha applied to Mrs Hart for a job on 11 August 2005, very soon after the latter had acquired the business. Mrs Stariha began work in the Brisbane office on 29 August 2005. Mrs Hart gave evidence that, in October 2005 she discussed with Mrs Stariha whether she would consider transferring to the Gold Coast to re-open the office that Karen Ellis had previously operated from Southport between August 2003 and December 2004. Mrs Stariha accepted the offer to work in the Gold Coast office and commenced there on 7 November 2005.

10    Mrs Stariha denied that Mrs Hart had mentioned Mrs Ellis or “reopening” of the Gold Coast office during their discussions leading to her relocating to the Gold Coast. Mrs Stariha gave evidence that she had been told that Diane Knight and a Ms Garnett-Palmer had both worked for Karen Ellis and, as his Honour set out at [373], Mrs Stariha also said, with his Honour’s emphasis:

“… When I interviewed at the Brisbane Frontline office in 2004 I was interviewed by Karen Ellis. I believed that Karen Ellis owned the Brisbane retail agency. In August 2005, Ms Hart told me that she had purchased the Brisbane retail agency from Karen Ellis. I note that [F[rontline]and Mr Davis] have discovered a document entitled “Brisbane Sales-Consultant Summary Report” … in which Ms Garnet-Palmer is listed as a consultant for Brisbane Retail.”

11    From November 2005, Mrs Hart arranged for Mrs Stariha to operate an office of Hart Trading on the Gold Coast. Mrs Stariha did so with considerable success while Mrs Hart continued her company’s operations in Brisbane.

12    In January 2006, Mrs Stariha contacted Ms Knight who was then working at Billabong, a retailer. Ms Knight’s details probably appeared in the Frontline database as a contact to which Mrs Stariha had access. Ms Knight had worked as a recruitment consultant in the Gold Coast office between October and December 2004.

13    On Ms Knight’s account, Mrs Stariha first spoke to Ms Knight by introducing herself as being from “Gold Coast Frontline Retail”. That surprised Ms Knight who told Mrs Stariha that she had worked for the Gold Coast office when it had been open previously and she understood that it had closed down later. They discussed the location of the current and past offices, which were a few suites from each other in the same building. Ms Knight did not give evidence that she told Mrs Stariha about the identity of her former employer beyond using the generic description of the Gold Coast Frontline office. Ms Knight said in cross-examination that she worked for Karen Ellis and denied telling Mrs Stariha that she had worked for Mrs Hart.

14    On 23 January 2006, Mrs Knight emailed her curriculum vitae to Mrs Stariha that set out that she had worked between October and December 2004 for Frontline Retail at Southport on the Gold Coast. His Honour set the relevant position out at [492], including the following:

“Reason for leaving

A business decision was made to close the office and cover the Gold Coast region from Brisbane.” (emphasis added)

15    On Mrs Stariha’s account, she enquired of Ms Knight whether she could make job placements for Billabong. Mrs Stariha gave evidence that Ms Knight told her that she had worked for Mrs Hart. Mrs Stariha denied having any knowledge, prior to early 2009, that Ms Ellis had been the previous proprietor. She said that, had she known beforehand that Ellis Trading had closed the Gold Coast office, she would not have caused Julstar to purchase the business from Hart Trading in the transaction in early December 2006 that is at the centre of these proceedings. Mrs Stariha said that, had she known that the previous Frontline franchisee had closed that office and it had been “a poor financial performer”, that information would have been inconsistent with what she claimed Mrs Hart and Mr Davis had each told her about the financial success experienced by Frontline franchisees.

16    In September 2006, Mrs Hart and Mrs Stariha discussed the possibility that Mrs Stariha might purchase the Gold Coast business and operate a Frontline franchise there in her own right. In the event, Mrs Stariha caused Julstar to be her corporate vehicle for that purpose.

17    On 5 or 6 October 2006, Mrs Stariha and Mrs Hart met and discussed the proposed transaction. Mrs Hart showed Mrs Stariha two accounting spreadsheets that were printouts headed “GC Agency”, one being for 2005/2006 and the other containing what appeared to be the year to date results for 2006/2007. There was a substantial factual dispute, for reasons that do not seem material, as to whether Mrs Hart left those two documents with Mrs Stariha. The documents showed that Hart Trading’s Gold Coast office, which Mrs Stariha ran but had no accounting responsibility for, had earned net profits for the eight or so months to 30 June 2006 of $58,216.51 and for the next period to early October 2006 of about $14,200. Mrs Hart said that she wanted $240,000 for the business, and that figure became the price.

18    Importantly, on 13 October 2006, Mrs Hart sent an email to Mrs Stariha, copied to Mr Davis, that attached two spreadsheets, with figures updated and adjusted from those discussed at the meeting of 5 or 6 October 2006, after Mrs Hart’s bookkeeper had reviewed the earlier figures. The text of the email said:

“Attached is the GC P&L for 05/06 & 06/07

Also I’ve attached an Agency Forecast for your perusal – interesting to play with.

Happy reading!”

19    There was a dispute as to whether Mrs Stariha and Mrs Hart had another meeting or meetings to discuss matters around this time, but nothing turns on this.

20    On 18 October 2006, one of Frontline’s employees, Ms Briede, emailed Mrs Stariha, copying in Mr Davis and Mrs Hart, with a non-disclosure agreement for her to complete so as to be able to be sent Frontline’s template perusal version of its franchise agreement that she was contemplating signing.

21    On 19 October 2006, Mrs Stariha sent an email to Mrs Hart, whom she knew was in Perth attending a conference. Mrs Stariha attached a revised spreadsheet and other documents showing her workings on the figures in the documents that had been attached to Mrs Hart’s email of 13 October 2006. The original spreadsheet gave an estimated net profit of $53,805.60 for the 12 months period (November 2005 to October 2006) for the Gold Coast office. That was based on an income of $151,512.91 and, among others, an expense item for Mrs Stariha’s salary of $61,481.06. The documents that Mrs Stariha emailed to Mrs Hart on 19 October 2006 also included a sheet headed “Forecasts from research”. Mrs Stariha’s email said:

“I understand that you must be busy with the conference. If you have a chance, can you look at my workings on the figures. Broken it down as best I can. Should I forward a copy to shan [Ms Shannon Price], is this her sort of thing?

If there is anything that you believe that I have forecast incorrectly, please let me know. Can you also confirm that the sales that I mention[ed] yesterday, that I have highlighted in red, if these need correcting. The numbers based on $150k nett look weak.

One question – Pete mentioned on the phone that there is a $70 per head charge for the Commander lines. Melissa didn’t mention that in her email on computer charges. Is that charged? (if so, it is not included in the forecasts)

I just asked the service office to outline the fees so I can audit that, and they will not provide the information. Will chase later.

From these figures I have my business plan ready for the bank. Appreciate your feedback.

Please do not look at my workings thinking that this is a huge concern or I am stressed or worried – I find this enjoyable! I will really appreciate your feedback this is the basis of my business plan, if this under/over prefer to adjust now.

On the GC news side –

Good news is we have priceline in the bank, Mathers replaced …, hopefully another Mathers (tweed) tomorrow for October, two rubellis for October, Versace for October. Best n Less looks like November.” [his Honour’s emphasis]

22    As his Honour noted, Mrs Stariha’s reference to “numbers based on $150k nett look weak” concerned the combined net income figure for the 11 month period of her office’s operations derived from the two spreadsheets that Mrs Hart had shown and provided to her.

23    After receiving Mrs Stariha’s email, she and Mrs Hart had either a meeting (according to Mrs Stariha) or a telephone conversation (according to Mrs Hart). The conversation on this occasion was the foundation of the appellants’ claim that Mrs Hart and Hart Trading represented to them that the Gold Coast business:

    had earnings before interest and tax (i.e. the accounting acronym “EBIT”) of $80,000 in the previous year;

    would achieve an EBIT figure of $80,000 in the first year of Mrs Stariha operating a franchise there in addition to it paying her a wage of $50,000 if she purchased it from Hart Trading;

    had a value of $240,000 based on EBIT of $80,000 per annum; and

    would be profitable in the future.

24    Mrs Stariha’s version of the discussion was that she asked Mrs Hart what she thought of the revised spreadsheet. Mrs Hart said that the figures were very detailed and looked right, but asked whether Mrs Stariha would like it if she got her bookkeeper (Ms Price, to whom Mrs Stariha referred in her email) “to do up the figures” for her. Mrs Stariha responded that if Mrs Hart thought that her “revised figures are correct then what was the point of having her bookkeeper do them up for [her]”. Importantly, by then, Mrs Stariha had seen her accountant, who advised her that, in his opinion, the business was worth between $180,000 to $190,000 “at a push” and that the price of $240,000 had “blue sky” in it. Mrs Stariha said that she told Mrs Hart of that advice. Mrs Hart responded that she would discuss a sale with others if Mrs Stariha was not interested. Mrs Stariha said that Mrs Hart told her that it was “a good business that does $80,000 EBIT after payment of [her] salary and [Mrs Stariha] was working it anyway”. Mrs Stariha said that she wanted to continue looking at the business.

25    Mrs Hart’s version of the same conversation was that it occurred on 20 October 2006. She said that she told Mrs Stariha that she had not had a chance to look at the new spreadsheet properly. She said that Mrs Stariha told her that she had highlighted the figures for the four months where the sales appeared to differ from those in the spreadsheet that Mrs Hart had provided earlier. Mrs Hart said that they went through the figures line by line, discussing apparent differences. Mrs Hart asked Mrs Stariha if she wanted her to get her bookkeeper, Carolyn Hutt, to revise the profit and loss spreadsheet but said that her asking price would remain the same even if any of the discrepancies resulted in an increase in the EBIT figure and, thus, the worth of the Gold Coast business. Mrs Hart said that Mrs Stariha responded that she understood where the discrepancies came from and so did not need a revised spreadsheet from Mrs Hart. She told Mrs Stariha that the $240,000 asking price was not going to change and the latter replied that she was happy with the price. Mrs Hart denied saying that Mrs Stariha’s spreadsheet was accurate. She did draw from it that Mrs Stariha had done extensive due diligence.

26    Significantly, the revised spreadsheet contained a number of items that Mrs Stariha highlighted to identify the differences in the approaches between the documents Mrs Hart had sent her on 13 October 2006 and Mrs Stariha’s own calculations. These included items of income and sales figures. In the “forecast” column, Mrs Stariha identified an EBIT for the 12 months to October 2006 (treating that as a full month) of $75,787.14 as compared to the $53,805.60 arrived at in Mrs Hart’s calculations. The figures also included calculations for a repayment of a $250,000 loan over a 10 year cycle of principal and interest. Mrs Stariha identified a number of items where there were apparent discrepancies or for which she sought confirmation. Her forecast heading was “Forecasts from research” and these included a number of adjustments including a reduction of her salary by about $11,500. The adjustments that Mrs Stariha made to the expenses did not make any material difference to the $97,700 in Mrs Hart’s figures, her own coming out at approximately $97,500.

27    Mrs Hart’s figures provided no support for a suggestion that the business would earn an annual EBIT figure of $80,000, even if one added back the $11,500 reduction in Mrs Stariha’s salary, the EBIT would have been only about $65,000. Mrs Stariha’s own figures came up to about $76,000.

28    Mrs Stariha returned a signed non-disclosure agreement to Ms Briede at Frontline, and on 20 October 2006, Ms Briede sent her the perusal version franchise agreement and a map of the Gold Coast and Brisbane territories for her to consider.

29    Mrs Stariha asserted that sometime around this period she also received, but had not kept any record of, a disclosure document prepared by Frontline as a franchisor under the Franchising Code. Mrs Stariha asserted that this disclosure document contained no disclosure at all about litigation in the Supreme Court of New South Wales in which Frontline was then being sued by one of its franchisees, Aura. Those proceedings settled on 8 November 2006.

30    Frontline issued Version 9 of the disclosure document in September 2006 that referred to the Aura proceedings, as his Honour found at [778]. Once those proceedings were finalised by a deed of release dated 8 November 2006 (as his Honour found at [780]), Frontline prepared Version 10 of its disclosure document in November 2006 that not only made no reference to the Aura proceedings but also contained a mistaken date for its issue. That mistake occurred because the date of issue of Version 9 had not been updated to the date of issue of its replacement Version 10.

31    Mrs Stariha’s husband, Lee, attended with her at Frontline’s “Discovery Day”, at its Bondi Junction, Sydney, premises on 6 November 2006. He and Mrs Stariha had discussed the proposed purchase, and indeed, he was to be involved as a guarantor of the loan made by the couple’s bank to support it. At the discovery day, Mr Stariha said that he and his wife met with Mr Davis, who gave them an outline of Frontline’s business and operations, together with the role of particular Frontline employees. Mr Stariha said that his wife asked Mr Davis what he thought about the Gold Coast agency purchase price of $240,000 and that Mr Davis replied that:

“the price is fair because the franchise businesses have a 100% success rate and no business had sold for less than $200,000. The resale value of franchise businesses is high and you will get back at least what you pay for it.”

32    Mr Stariha said in his evidence that he could not recall, in discussions with Frontline staff on that day, any mention of the term “litigious environment” or his wife mentioning the possibility of candidates who had been placed suing a franchisor or a franchisee. He said that he had never spoken to his wife about proceedings brought by the disgruntled Sydney franchisee, Aura, and asserted that he was sure that, had such a discussion occurred, he would have made a note of it. In support of the latter assertion, Mr Stariha produced his diary entry for the next day that contained virtually no information at all. The incoming franchisee for Aura’s business was in attendance at the Bondi Junction event and sat in the next office to where the Starihas were located.

33    Mr Davis said that he told Mr and Mrs Stariha on 6 November 2006 that he could not tell them what the Gold Coast business was worth or what price it would realise if they later sold it. Mr Davis accepted that he may have told Mrs Stariha that Frontline “never had a franchisee go bad in our network”, that no franchises had been terminated or abandoned and that all franchises that had been sold realised more than their original purchase price. He said that he had not made any absolute or unqualified statements about the success of the businesses. He said that he spoke with Mr and Mrs Stariha on 6 November 2006 for some time about the Aura proceedings and the issues that had arisen in them.

34    On 23 November 2006, Ms Briede sent Mrs Stariha Version 10 of the disclosure document. A copy of Version 10 became Exhibit 3 in the proceedings. That document did not have any reference to the existence of current proceedings with Aura. Mrs Stariha asserted that, had she known of the Aura proceedings and had they been disclosed in the earlier version of the disclosure document that she claimed to have received (but for which there was no record of her having been sent or received), she would have seen that a franchisee had sued Frontline, and this would have influenced her not to go ahead with the purchase. Mrs Stariha accepted that she had reviewed the disclosure document on 24 November 2006 that Ms Briede had sent the previous day.

35    Mrs Hart sent an email dated 23 November 2006 to Mrs Stariha that said that no commission would be paid for October 2006 “given the short fall of performance v b’even in the first quarter. Commission for the 2nd quarter will be paid”. The email showed that total sales (excluding GST) in the three months to September 2006 were $22,569.40, being $37,130.60 below the break even for the quarter of $59,700 whereas sales for October 2006 (the only subsequent figures) were $28,549.20, being $8,649.20 above the monthly break even figure of $19,000. The four month total income was $51,118.60.

36    On 8 December 2006, Mrs Stariha caused Julstar to purchase the Gold Coast Frontline agency from Hart Trading for $240,000. It is not necessary to go into detail about what happened subsequently. Relevantly, his Honour set out data at [152] that Mrs Hart had prepared as to the sales in the years ended 30 June 2006 and 2007 in the following table:

37    The accuracy of that data was not challenged on the appeal. It revealed that sales for the period 7 November 2005 (when Mrs Stariha commenced at the Gold Coast office) and 31 October 2006 totalled $239,987. Importantly, the figures revealed significant increases in sales for each of the first three quarters (to June 2006), a drop in the September 2006 quarter to about $25,000, and a three-fold increase in the December 2006 quarter. The negative figure for January 2007 reflected a significant number of failed placements shortly after Julstar began operating the business to which we will refer in discussing grounds 5 and 11 at [100]-[102] below.

38    In early 2006, Mrs Stariha caused Semolina to be incorporated and, in late 2007, to begin conducting a Frontline franchise for the hospitality industry in the Gold Coast area. However, no issue arises on the appeal in respect of that transaction. Subsequently, the effects of the global financial crisis appear to have made business conditions very difficult for Julstar.

39    Mrs Stariha sent emails on 24 November 2008 to Mr Downer and Mrs Hart in which she expressed her desire to sell the two businesses of Julstar and Semolina. Mrs Stariha sent a copy of her email to Mr Downer to Mrs Hart, saying that her proposal to sell was confidential. She had asked Mrs Hart’s opinion and whether the latter knew anyone who might be interested in purchasing. The email to Mr Downer discussed the financial performance of the Gold Coast business for which Mrs Stariha sought $305,000 as a minimum figure. She asserted in this email that its annual costs were $24,076 and that the price was:

“Based on $265k sales – ebit $155k including $50k ao/consultant wage.

The business was bought two years ago with a $80k ebit consistent profit. The costs are lean and consistent.” (emphasis added)

40    On 19 February 2010, Mrs Stariha ceased to operate both of the franchises. Subsequently, she sought to collect for herself, without accounting to Frontline, about $7,000 worth of outstanding fees from one of Julstar’s former clients, GoGetters or GoFit, when she did some more work for that client whose principal was Mark Fitzpatrick.

41    It is necessary to explain Frontline’s accounting arrangements with its clients and franchisees. Under cl 2.38.2 of the franchise agreement, all invoices to clients for the placement of successful candidates by a franchisee had to be forwarded to the client by Frontline. Frontline was entitled to deduct a royalty from any payment it received on such invoices and it then had to remit the balance to the franchisee at the end of the month in which Frontline received the payment, and cl 2.38.2 continued:

“The Franchisee agrees and acknowledges that at no time is it to issue an invoice directly to any client.” (emphasis added)

42    Ordinarily, a Frontline franchisee placed an employment candidate with a client. Frontline issued an invoice to the client on which the franchisee’s name and franchise also appeared. The client paid the invoice to Frontline which then paid the invoiced amount, less its royalty entitlement, to the franchisee at the end of the month of collection. If the candidate left the client’s employment within three months, for any reason other than redundancy, the franchise contract between Frontline and the franchisee provided that the franchisee had to find a replacement candidate without charging any additional fee to the client.

43    Frontline’s accounting system recorded the franchisee’s obligation to find such replacement candidates as a “replacement credit”, or negative book entry, that cancelled out the earlier positive book entry reflecting the face value of Frontline’s invoice to the customer. Thus, the replacement credit operated as a recognition of the franchisee’s obligation to find a replacement candidate. Ordinarily, it was in the franchisee’s interests to discharge that obligation promptly so as to earn its reward and retain client satisfaction. However, the book entry for a replacement credit did not reflect a refund to the client of the amount payable under the invoice. Frontline was entitled under the franchise agreement to be paid by the client and to deduct its royalty from the money paid before paying the balance to the franchisee.

44    Importantly, the contracts between Frontline and each of the client and the franchisee obliged Frontline and the franchisee respectively to find a replacement candidate at no cost. Once the franchisee found a replacement, the Frontline accounting system recognised the replacement credit entry as a “replacement” entry. As a consequence, the negative book entry for the replacement credit was reversed, so that the franchisee’s successful work in finding the replacement resulted in there being no net book or accounting income or expense in the accounts between Frontline and the franchisee following the invoice for the original unsuccessful placement.

The primary judge’s findings

45    His Honour said that he had dedicated considerable time to examining the primary evidence of the principal protagonists, which we have briefly summarised above on the issues relevant to this appeal. He noted that, as can be seen from that summary, nearly every contention was met by counter-contention that spanned the entire field. He recorded that although he recalled the demeanour of the witnesses as they were cross-examined, he considered that the resolution of the issues did not turn on their demeanour.

46    The primary judge found that, in some senses, Mrs Stariha’s success, when an employee of Hart Trading, in the period between August 2005 and December 2006, was the source of her potential problem. That was because she was an energised, enthusiastic person and those qualities had led to her being very successful in generating placement income for Hart Trading in that period. And her success at that time underlay her keenness to purchase the business.

47    His Honour found that, once Mrs Hart had provided her with the spreadsheets in the email of 13 October 2006, Mrs Stariha then began to investigate, very thoroughly, the field of potential expenses that she would need to meet if she acquired the Gold Coast agency. His Honour found that Mrs Stariha made revisions, based on her understanding, including of anomalies she identified in the recorded revenues, so that she inserted borrowing and other expenses, and made other adjustments to income and expenses in the spreadsheet sent to her on 13 October 2006. Mrs Stariha then sent her revised version of the spreadsheet to Mrs Hart and asked her to identify features in that analysis that appeared to be inaccurate to Mrs Hart.

48    In the end, the primary judge was not satisfied that Mrs Hart represented to Mrs Stariha that the revised spreadsheet was accurate. While his Honour accepted that Mrs Hart had said that “it looked right”, he found that, in context, this remark fell far short of representing that each and every item in Mrs Stariha’s own revisions was accurate. Mrs Hart had invited Mrs Stariha to let her bookkeeper, Ms Hutt, look at the figures, but Mrs Stariha chose not to follow that course and instead chose to act on what she attributed to Mrs Hart’s remark. His Honour found that that remark was not a warranty of accuracy of the spreadsheet. Rather, it was a statement, in context, that the spreadsheet “looked” accurate.

49    His Honour was not satisfied that Mrs Hart had described the franchise as a “cash cow” or that franchises were highly profitable. The primary judge found that Mrs Stariha relied on her own analysis in reaching a conclusion about the profitability of the business and the acquisition.

50    Next, his Honour rejected Mrs Stariha’s evidence that she knew nothing of the previous Gold Coast franchise operated by Ellis Trading. He held that, well before Mrs Stariha decided to cause Julstar to purchase the business, she had been engaging with individuals, including Ms Knight, who had worked for the Ellis Trading franchise. His Honour found that Mrs Stariha knew before Julstar’s purchase that Ellis Trading had conducted a Frontline franchise on the Gold Coast and that it had ceased to operate before Mrs Stariha commenced employment with Hart Trading in August 2005.

51    His Honour found that, while Mrs Stariha genuinely believed that Mrs Hart gave spreadsheets to her in the meeting of 5 or 6 October 2006, that had not happened. Instead, Mrs Stariha had only received the spreadsheets on 13 October 2006 and had come (erroneously) to believe that she had received them on the earlier occasion. Unlike the 13 October 2006 version, the spreadsheets that Ms Price provided to Mrs Hart did not contain entries for October 2006. The primary judge found that Mrs Hart had taken the earlier spreadsheets prepared by Ms Price to the 5 or 6 October 2006 meeting, but subsequently retained them and, so, had not left a copy of them with Mrs Stariha .

52    Next, his Honour found that he was not satisfied that Mrs Hart had made a representation that Mrs Stariha should proceed on the footing that the EBIT of the Gold Coast agency were, or would be, $80,000. He noted the absence of both any contemporaneous documents that made any such assertion and any written communication by Mrs Stariha complaining of the omission of an EBIT figure of $80,000 from the 13 October 2006 spreadsheet sent to her by Mrs Hart.

53    The primary judge was also not satisfied that Mrs Hart had made a representation as to the future profitability of the Gold Coast agency. While he found that Mrs Hart had said that the business would go well or that she was confident that it would go well, his Honour held that such an expression of belief was well short of a representation that the business would be “highly profitable” or was a “cash cow”. His Honour noted that, in cross-examination, Mrs Stariha had suggested that such a representation was a necessary inference from what she asserted was Mrs Hart’s statement (that his Honour had rejected) that the business would generate $80,000 in EBIT.

54    His Honour accepted, generally, the evidence of Mr Davis and, in particular, found that Mr Davis had not made any of the representations attributed to him. The primary judge found that Mr Davis had no particular financial interest in securing a sale by Hart Trading to Mrs Stariha. His Honour found that Mr Davis had “actually preached a cautionary approach to Mrs Stariha” and had told Mrs Stariha about the Aura proceedings. His Honour acknowledged that Mr Davis had not referred to two matters in his letter to the Australian Competition and Consumer Commission that he knew rendered untrue his explanation of an entry boasting a “100% success rate” on Frontline’s website that had appeared there well after its dealings in 2006 with Mrs Stariha. However, the primary judge found that this matter did not detract from his overall assessment of Mr Davis as an impressive witness whose evidence was reliable. His Honour found that Mr Davis’ version of the events in controversy was correct and that Mrs Stariha did not believe that the position for which she contended against Frontline and Mr Davis was true.

55    The primary judge reasoned that, in the seven month period immediately following Julstar’s purchase of its Gold Coast franchise, first, Mrs Stariha made no written complaint to anyone about any of the matters on which she later relied as evidencing that she had been misled or deceived and, secondly, actively pursued acquiring from Frontline two hospitality franchises, initially, in Far North Queensland, and subsequently, on the Gold Coast, being the one Semolina purchased. As his Honour found:

“As to the hospitality arrangements, the odd thing at the outset about the hospitality arrangement is that Mrs Stariha entered into the Frontline franchise and then quite quickly agitated strongly with Frontline and Mr Downer to take up a franchise for Far North Queensland. This does not seem to be the conduct of a person who is concerned about having been led into the operation of a business on the footing of misrepresentations about EBIT earnings and returns. Having failed to secure that territory, Mrs Stariha then took up a hospitality franchise, approximately seven months after trading in the retail franchise. Again, Mrs Stariha has embraced striking a new franchise arrangement, through Semolina, with some of the same group of individuals, so far as [Frontline] is concerned, that she had been dealing with in respect of which she says she was led into a retail franchise at an overvalue and one which was not ever profitable.” (emphasis added)

56    Importantly, his Honour then found:

“However, I am not satisfied that Mrs Stariha was led into taking up the hospitality franchise in the way she claims based on the representations she asserts. I do not accept that representations were made to her to the effect that no franchisee had failed or that the franchises were highly profitable. When it comes to a contest of evidence between Mrs Stariha and either Mr Downer or Mr Davis, I am satisfied that the version of events given by both Mr Davis and Mr Downer is to be preferred. I also find that the evidence of Mrs Hart is to be preferred to that of Mrs Stariha.

I also find it odd that after a period in which Mrs Stariha had been operating the retail business and then the hospitality business, which might be regarded as an objectively reasonable period for a new operator to come to grips with the realisation that the businesses were not profitable in the way she imagined based upon “things” said to her, no complaint is made in emails or correspondence about those matters. By then, it may well have been too late to seek to set aside entry into those businesses but it is odd that Mrs Stariha was not propounding in writing her contentions about the conduct with Mrs Hart, Mr Davis and Mr Downer.” (emphasis added)

57    His Honour found that, although Mrs Stariha strongly believed that she had received a Frontline disclosure document under the Franchising Code in October 2006, she was confused about that by the references to the non-disclosure agreement in documents created around that time. He found that Mrs Stariha only received the disclosure document on or about 24 November 2006 and that the version that she then received was materially accurate because at that time there were no extant proceedings against Frontline. Accordingly, his Honour found that there had been no contravention of the Franchising Code.

58    The primary judge found that, having analysed and weighed carefully all of the evidence in light of the deeply entrenched contest on all sides, the appellants’ claims failed.

The appellants’ arguments

59    In oral submissions, the appellants conveniently grouped the 20 grounds of appeal that they pressed into the following 7 categories challenging particular findings by the primary judge. First, the appellants argued that his Honour was wrong to find that Mrs Hart had not represented to Mrs Stariha that the Gold Coast business would generate an annual EBIT figure of $80,000 and that that business would be “highly profitable”. They contended that the primary judge had not attached sufficient weight to, or considered, the emails that Mrs Stariha had sent to Mr Downer of Frontline and forwarded to Mrs Hart on 24 November 2008 to which we referred at [39] above). (They did not press in argument a further contention in Ground 12 that evidence of a Mrs Austin was similar fact evidence to which his Honour had failed to attach sufficient weight.)

60    They also contended that his Honour erred in assessing the circumstances in which Mrs Hart had said to Mrs Stariha that she (Mrs Hart) thought or believed that the business would go well or that she was confident that it would. The appellants argued that the primary judge did not take the revised spreadsheet into consideration or, if he did, give adequate weight to the circumstances (Grounds 12, 13 and 14).

61    Secondly, the appellants contended that the primary judge erred in accepting Mr Davis’ evidence that he had not made the representations alleged. That was because, they submitted, his Honour had failed to attach sufficient weight to a diary note of Mr Stariha, Mr Davis’ one page summary notes of his agenda on Discovery Day, Mr Stariha’s witness statements in chief and in reply and evidence of Mrs Austin. However, no evidence of Mrs Austin was referred to in argument or included in the appeal books. All that senior counsel for the appellants put was that in paragraph 86 of their final written submissions at the trial there was some mention of Mrs Austin’s evidence about a statement at the Discovery Day that Frontline franchisees had had a 100% success rate. Those trial submissions were not before us. Accordingly, we have not been able to consider what, if anything, the evidence of Mrs Austin might have revealed (Grounds 16 and 17).

62    Thirdly, the appellants contended that the primary judge made a series of erroneous findings in relation to the spreadsheets, Mrs Stariha’s revisions of them and the surrounding circumstances involving those documents (Grounds 1, 1A, 1B, 2, 3, 4, and 6). They argued that his Honour:

•    found, contrary to the evidence, that Mrs Stariha had taken the spreadsheets provided to her by Mrs Hart on 13 October 2006 and then revised them as his Honour found (Grounds 1, 1B);

•    erred in failing to find that Mrs Hart provided Mrs Stariha, in an email, with an agency forecast template on 13 October 2006 (Ground 1A);

•    found, contrary to the evidence, that Mrs Hart had not represented to Mrs Stariha that the revised spreadsheet was accurate (Ground 2);

•    erred in finding that Mrs Stariha had relied on her own analysis in reaching a conclusion about the profitability of the business, in misconstruing the evidence of the conversation between Mrs Stariha and Mrs Hart of 5 or 6 October 2006, in giving insufficient weight to Mrs Hart’s email to Mrs Stariha dated 13 October 2006 attaching the agency forecast for her perusal (see [18] above) and in giving undue weight to his findings that Mrs Hart had not revised the spreadsheet (Grounds 3 and 4);

•    found, contrary to the evidence, including Mrs Hart’s 13 October 2006 email (referred to at [18] above), that Mrs Stariha went ahead with the purchase fundamentally because of her own enthusiasm, experience and analyses (Ground 6).

63    Fourthly, the appellants challenged the primary judge’s findings about the financial performance of the Gold Coast business before the sale to Julstar and argued that his Honour:

•    found, contrary to the evidence, that Mrs Stariha had been successful in running the Gold Coast business between August 2005 and December 2006 (Ground 5);

•    erred in finding that Mrs Stariha had been responsible for generating a very substantial volume of placements for the Gold Coast business between August 2005 and November 2006 because his Honour failed to place sufficient weight on evidence that Mrs Stariha had suffered a run of 17 placements in a row that had not succeeded (Ground 11).

64    Fifthly, the appellants contended that his Honour erred because he found that, well before Julstar’s purchase, Mrs Stariha knew that Ellis Trading had conducted and then ceased trading a Frontline agency on the Gold Coast and that the primary judge had attached too much or insufficient weight to evidence of a number of witnesses (Grounds 7, 8, 9 and 10).

65    Sixthly, the appellants challenged his Honour’s observation at [760] that he was “more troubled by Mrs Stariha’s arrangements with Mr Fitzpatrick to secure payment to Mrs Stariha of placement revenues that were actually payable to [Frontline] and ultimately never reimbursed to [Frontline] by Mrs Stariha”. The appellants contended that the finding as to Frontline’s legal right to money was “wrong in law” because the primary judge failed to attach any, or any sufficient, weight to four invoices and an email, together with a document not in the appeal papers, and what Mrs Stariha said in cross-examination (Ground 15).

66    Seventhly, the appellants argued that his Honour misconstrued the evidence in finding at [782] that Frontline had not contravened the Franchising Code because, in effect, he wrongly did not accept Mrs Stariha’s evidence that she had received a disclosure document from Frontline in October 2006 that failed to disclose the then current Aura proceedings (Ground 18).

Consideration – General

67    The appellants did not raise a ground of appeal that the delay in giving reasons itself entitled them to have his Honour’s order dismissing their proceedings set aside. Rather, they argued that particular findings that they challenged in individual grounds of appeal were erroneous or not sufficiently justified by the primary judge’s reasons. We will deal with the individual and grouped grounds later in these reasons. However, at the outset it is important to set out the principles applicable in an appeal of this nature that the appellants’ submissions largely ignored.

68    Gleeson CJ, Gummow and Kirby JJ explained the function of an appellate court on an appeal by way of rehearing, such as this, in Fox v Percy (2003) 214 CLR 118 at 125-129 [22]-[31]. There are natural limitations on an appellate court, which must proceed on the record in, or so much of the record as is in, the appeal papers where a trial judge has made findings after seeing and hearing witnesses (214 CLR at 125-126 [23], 127 [26]). The appellant in such a case must show that the trial judge made an error of principle, misapprehended a fact, or the overall effect of the evidence was such that the judge’s acceptance or rejection of a witness’ evidence was not reasonably open: Devries v Australian National Railways Commission (1993) 177 CLR 472 at 482-483 per Deane and Dawson JJ; Abalos v Australian Postal Commission (1990) 171 CLR 167 at 179 per McHugh J with whom Mason CJ, Deane, Dawson and Gaudron JJ agreed; Fox 214 CLR at 127 [26]-[27].

69    As we have noted, there was an unfortunately lengthy delay between the conclusion of the trial and the delivery of his Honour’s reasons. His Honour was conscious of the impact of this delay on his task in providing reasons explaining why he had reached particular findings having regard to the principles in Expectation Pty Ltd v PRD Realty Pty Ltd (2004) 140 FCR 17 at 32-33 [66]-[74] per Carr, Emmett and Gyles JJ. They said that in cases of significant delay “it is up to the trial judge to put beyond question any suggestion that he or she has lost an understanding of the issues”, and to explain the reasons why either the evidence of a witness has been rejected or why the judge has preferred the evidence of one witness over another or others (140 FCR at 33 [72]).

70    Here, in the first, very long, section of his reasons, the primary judge went to considerable length in summarising and analysing the principal witnesses’ evidence and the way in which that evidence related to the contemporaneous documents. His Honour drew the threads together in the briefer, shorter section of his reasons by explaining coherently and with appropriate detail why he made the findings of significance for determining the factual controversies, sometimes having regard to such analysis of the issues as he made earlier in the longer section.

71    We are satisfied that the primary judge carried out a detailed consideration, being a more comprehensive statement of the evidence than is normally required. He did that because of the lengthy delay and to demonstrate that the delay had not affected his decision: Expectation 140 FCR at 35 [80]-[81]. His Honour’s reasons contain a clear account of his process of reasoning and all necessary findings of fact: Haros v Linfox Australia Pty Ltd (2012) 287 ALR 507 at 514-515 [30]-[31] per Gray, Marshall and Bromberg JJ.

72    In order to determine whether conduct was misleading or deceptive for the purposes of s 52 of the Trade Practices Act and its analogues, the Court must engage in a close analysis of all the circumstances of the transaction: Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at 84 [99]-[100] per Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 604-605 [36]-[40] per Gleeson CJ, Hayne and Heydon JJ; Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 384 [91] per Heydon, Crennan and Bell JJ. As the Court said in Campomar 202 CLR at 85 [102], in approving what Gibbs CJ had said in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199:

“the legislation did not impose burdens which operated for the benefit of persons ‘who fail[ed] to take reasonable care of their own interests’. In the same case, Mason J concluded that, whilst it was unlikely that an ordinary purchaser would notice the very slight differences in the appearance of the two items of furniture in question, nevertheless such a prospective purchaser reasonably could be expected to attempt to ascertain the brand name of the particular type of furniture on offer [Puxu 149 CLR at 210-211].” (emphasis added)

73    Importantly, in this case, the witnesses gave their evidence over five years after the events and alleged representations the subject of the litigation in circumstances where Mrs Stariha had not raised any complaint until bringing the proceedings in 2011. That was a considerable period after each of the two purchases had completed. The assessment of the evidence of witnesses in such a case, ordinarily, will be approached in the manner discussed by McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-319 as follows:

“Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as “misleading”) [sic] within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. 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 or 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, constructed. All this is a matter of ordinary human experience.

Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court “must feel an actual persuasion of its occurrence or existence”. Such satisfaction is “not … attained or established independently of the nature and consequence of the fact or facts to be proved” including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding”: Helton v Allen (1940) 63 CLR 691 at 712.

Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) … in the absence of some reliable contemporaneous record or other satisfactory corroboration.” (non-italic bold emphasis added)

74    That caution is also reflected in s 140 of the Evidence Act 1995 (Cth) and in what Dixon J said in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-363 about the standard of proof. Dixon J emphasised that, when the law requires proof of any fact, the Court must feel an actual persuasion of its occurrence or existence before it can be found. He said that a mere mechanical comparison of probabilities, independent of any belief in its reality, cannot justify a finding of fact: see too Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at 479-482 [29]-[38] per Weinberg, Bennett and Rares JJ. As Dixon J said (60 CLR at 362): “In such matters ‘reasonable satisfaction’ should not be produced by inexact proofs, indefinite testimony, or indirect inferences”. But, the nature of the fact to be proved necessarily affects the sufficiency of the evidence by which it can be established.

75    In the end, the appellate court must be persuaded that the trial judge made a wrong finding, but will do so mindful of the particular advantages enjoyed by the judge that cannot be replicated on an appeal by way of rehearing: cf too: Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211 at 220-221 [46]-[47] per Branson, Nicholson and Jacobson JJ.

Consideration – Grounds 12, 13 and 14

76    The appellants argued that Mrs Stariha’s emails to Mr Downer and Mrs Hart sent on 24 November 2008 (referred to at [39]) corroborated evidence that Mrs Hart had made a representation to her, over two years earlier, that the Gold Coast business had, at that earlier time, annual EBIT of $80,000.

77    In our opinion, the appellants’ argument is without substance. First, the emails suggested on their face that the Gold Coast business had almost doubled its annual EBIT to $155,000 from the $80,000 figure in the succeeding two years following Julstar’s purchase. That is a far cry from the picture Mrs Stariha sought to paint at the trial. Secondly, the reference to “a $80k ebit” did not attribute a source. His Honour found that the source, if there was one, was Mrs Stariha’s own analysis and was not a representation by Mrs Hart. The emails of 24 November 2008 do not raise any reason to doubt that finding. Rather, they reinforce it. That is because of the lack of any complaint, until the proceedings were filed below, about the EBIT figure, in contrast to Mrs Stariha’s assertions in those emails of how the business’ EBIT had increased over the succeeding two years in order to justify her asking price.

78    Indeed, as the primary judge set out at [238], Mrs Stariha’s revised spreadsheet arrived at an annual EBIT figure for the 12 months to October 2006 of $75,787.14 as compared to Mrs Hart’s original spreadsheet’s figure of $53,805.60. Thus, Mrs Stariha’s revisions produced a figure for an EBIT figure very close to $80,000 and, as we have found at [27], Mrs Hart’s figures did not support that calculation. In that context, it was open for his Honour not to be satisfied that Mrs Hart had made the representation alleged about an EBIT figure of $80,000: Watson 49 NSWLR at 318-319.

79    The primary judge’s findings, as to what Mrs Hart had said about Mrs Stariha’s revised spreadsheet looking right and her offer to let her bookkeeper look at the figures, belie any suggestion that his Honour fell into error in his evaluation of that evidence. The primary judge found that Mrs Stariha did not accept that there was a big difference between Mrs Hart’s response to her enquiry about the correctness of the revised spreadsheet looking “right but do you want me to run it past my bookkeeper?” and an unqualified assertion of its correctness (see [547]). That demonstrated a lack of insight by Mrs Stariha and a propensity to jump to a conclusion that the circumstances did not justify. His Honour carefully articulated his assessment of the evidence was in the short findings section of his reasons, that had had careful regard to his long summary of the evidence. Those findings were open on the evidence and his Honour’s reasons cogently justified them. Mrs Stariha declined the offer to have the bookkeeper look at her work. Mrs Hart’s statement that the revised spreadsheet “looked right” was made in the context of that offer and the fact that Mrs Hart had given Mrs Stariha her figures that revealed an EBIT figure about $22,000 less than in Mrs Stariha’s revision. No reasonable person in Mrs Stariha’s position could have relied on Mrs Hart’s statement, in its context and qualified as it was by the offer to have the bookkeeper look further at the work, as a representation of correctness: Puxu 149 CLR at 199.

80    Moreover, although they did not appeal from the primary judge’s findings in relation to Semolina’s purchase of its franchise, his Honour’s findings about that transaction are relevant to the outcome of this appeal. Importantly, as we have set out with emphasis in [55] and [56] above, Mrs Stariha operated both businesses for a considerable period without making any complaint in any correspondence or emails about the matters of which she later complained in the proceedings. The primary judge’s findings discussing the claims in respect of Semolina are part of the overall evidentiary context in which he assessed the evidence of Mrs Stariha, Mrs Hart and Mr Davis as the principal witnesses. His Honour’s consideration of the whole of the issues that he had to decide included those unchallenged adverse findings about Mrs Stariha’s evidence and her lack of contemporaneous documents supporting her allegations or timely complaint.

Consideration – Grounds 16 and 17

81    Mr Davis’ agenda for Discovery Day did not refer, in the 12 point form topic notes, to the Aura proceedings that were finalised two days later. His Honour had regard to the fact that Mr Sher, the incoming franchisee who was purchasing from Aura, was in the room next to Mr and Mrs Stariha undertaking training. The primary judge found, as was open to him to do, that Mr Sher’s entry into the Sydney franchise cohort would have been talked about including the circumstances in which he was purchasing. His Honour explained how he had assessed Mr Stariha’s evidence that appeared to support his wife’s, saying at [772]:

“His evidence, without disrespect to him, is a little detached because he simply was not sufficiently engaged with things such as what documents were in the mail or what documents may have been opened over dinner one night or such matters. He is not sufficiently familiar with what may or may not have been taken to the lawyers. He is more focused about the question of his enquiries at the Discovery Day and I accept that Mr Stariha expressed apprehension about the uplift thresholds in revenue requirements under the Franchise Agreement. However, the difficulty is that although Mr Stariha was concerned about the uplift, I am not satisfied that the income requirement for the first year was to be $240,000. That was a requirement which would have applied to the second year and I am not satisfied that the evidence is that Mrs Stariha would be regarded as anything other than a first year franchisee for the purposes of the new Franchise Agreement.”

82    That finding was based on the evidence summarised by the primary judge at [457] that Mr Stariha did not recall reading any document received from Frontline. His Honour also found at [462] that Mr Stariha accepted that, in early 2011, he had seen a Frontline website, or printout from such a website, showing a claim of 100% success. Mr Stariha did not accept that, first, on 6 November 2006, he had confused what he had seen in 2011 from viewing the website with his recollection of what Mr Davis had said years earlier or, secondly, he was wrong to assert that Mr Davis had said that the $240,000 price for the Gold Coast business was fair because the franchise businesses had a 100% success rate.

83    His Honour found that Mr Davis had no particular interest in securing a sale of the Gold Coast business to Mrs Stariha and that Mr Davis considered that, whether she or Mrs Hart ran it, it would be successful. The primary judge found that Frontline would receive “a modest amount of $10,000” as a result of processing any sale and that Mr Davis had “preached a cautionary approach to Mrs Stariha”. That caution arose from Mr Davis’ response to Mrs Stariha’s request for his opinion on whether she should move into a more upmarket office because she was convinced that was a better deal than that for the then current office. Mr Davis told her that some clients might see an upmarket office as a sign that perhaps Frontline was charging too much for its services. He told her to be careful not to spend too much money and that the benchmark for rent was 6% of total revenue.

84    Here, there were no contemporaneous documents that recorded the alleged representations. Rather, the appellants sought to build a case from recollections given in witness statements, principally, of Mr and Mrs Stariha made years after the events in question and some time after the two businesses had failed together with other circumstances, such as the fact that Mr Stariha’s brief diary note of about eight lines for 6 November 2006 and Mr Davis’ agenda consisting of 12 one to three word topic entries did or did not record something. The primary judge was conscious of the fact that Mr Stariha was generally less focused on day to day events, but was more focused on his own enquiries at the Discovery Day. Yet, as his Honour explained, Mr Stariha’s recollection that Mr Davis had made a statement that the income requirement of $240,000 for the first year’s operation of a new franchise was wrong. Mr Stariha had confused that figure with what was in fact said. The written requirement in Frontline’s contemporaneous business documents for the first year was $150,000. It is improbable that Mr Davis would have given the wrong income requirement figure in his oral presentation.

85    These matters exemplify the need for caution in assessing oral evidence of this kind by interested persons expressed by McLelland CJ in Eq in Watson 49 NSWLR at 318-319.

86    We are not persuaded that, first, his Honour erred in his evaluation of the evidence complained of in grounds 16 and 17 or misused his advantage or, secondly, that the appellants have established that we should make any different findings.

Consideration – Grounds 1, 1A, 1B, 2, 3, 4, and 6

87    The primary judge gave detailed consideration to the evidence of each of the principal protagonists and the contemporaneous evidence in both the long section of his reasons and the section detailing his findings. In the longer section, his Honour found that Mrs Stariha accepted that she had asked her own accountant to look at the figures in the original blue spreadsheet provided by Mrs Hart and that Mrs Stariha’s accountant had told her that he thought the Gold Coast business could possibly be worth between $180,000 and $190,000 (see [548]). In our opinion, as we have also explained at [79] above, Mrs Stariha was unreasonable in attributing to Mrs Hart a representation of the correctness of her revised spreadsheet in those circumstances: Puxu 149 CLR at 199.

88    The gravamen of the appellants’ case at trial and on appeal against Mrs Hart and Hart Trading was that they had made the representations as to the correctness of Mrs Stariha’s revisions and the EBIT figure of $80,000 that those revisions would appear to support. His Honour rejected Mrs Stariha’s evidence about the representation of correctness for the sound reasons that he gave in the shorter portion of his reasons. He also correctly found that there was no other contemporaneous document, first, showing an EBIT figure of $80,000 at the time of the purchase and, secondly, no subsequent document created prior to the proceedings in which Mrs Stariha had asserted that Mrs Hart had made such a representation. Those findings were cogently explained in the shorter part of the reasons and substantively gave the quietus to the appellants’ whole case against Mrs Hart and Hart Trading. We not only see no error in his Honour’s reasoning on this aspect, we are satisfied that his findings were inevitable and correct.

89    The grounds complaining of his Honour’s findings as to the timing of the earlier events in the negotiations do not affect the crucial findings on the undisputed evidence, that Mrs Stariha unreasonably attributed representations by Mrs Hart of EBIT of $80,000 and of correctness to her revisions to the spreadsheet for which Mrs Stariha was solely responsible. After examining all of the relevant circumstances, particularly the conversation with Mrs Hart about the revised spreadsheet on which Mrs Stariha relied, in its context, the primary judge was not satisfied that Mrs Hart’s conduct amounted to conveying the representations alleged. We agree with his reasons for that conclusion. Nor are we persuaded that his Honour erred in arriving at the other factual conclusions challenged in grounds 1, 1A, 1B, 2, 3, 4 and 6.

90    The appellants contended that his Honour should have found that Mrs Hart left with Mrs Stariha four spreadsheets for the two financial years 2005/2006 and 2006/2007 at their meeting on 5 or 6 October 2006 as opposed to sending, for the first time on 13 October 2006 with the email set out at [18] above, two spreadsheets and an agency forecast, as his Honour found (at [738]). That finding was evidently based on the terms of the email that said in terms, that the profit and loss documents for the two financial years were attached to it. The appellants sought to explain that the timing of the provision of these documents before 13 October 2006 made some difference to the revision work that Mrs Stariha undertook between 13 and 19 October 2006 to produce her revised spreadsheet. The appellants contended that three employment candidates placed by Mrs Stariha in September 2006 could have generated income only if they had commenced employment on 9 and 16 October 2006 but that that income had been included in the documents used or provided by Mrs Hart in the 5 or 6 October 2006 meeting and in the email of 13 October 2006. They submitted that the candidate who had been due to commence on 9 October 2006 did not do so and that this fact was known to Frontline (which, as franchisor, received the fees when earned and accounted to franchises, such as Hart Trading, at the end of each trading month for their proportion).

91    There was no evidence that that fact was known to Frontline on 13 October 2006. The appellants did not argue that Mrs Hart knew about that matter when she sent her email on 13 October 2006 with the current year figures that showed accrued income from that person’s failed placement and the two others who were to commence employment on 16 October 2006. Moreover, the appellants’ argument never elaborated how, if a candidate placed by Mrs Stariha did not commence work, first, she did not know about that fact when it happened or, secondly, if as is likely she did know, why she made no enquiry if the figure in the spreadsheet included the fee for that candidate and had failed to include a write back of a replacement credit for it.

92    Mrs Hart accepted that only $8,870.31 had accrued (for placements who had actually begun employment) prior to 6 October 2006, and that the $14,194.40 income figure for October 2006 shown in the figures that she had provided in the spreadsheet would not have been accurate, had she included the latter figure on 6 October 2006. Mrs Hart used this fact to support her version of events that she only provided figures for October 2006 to Mrs Stariha in her email of 13 October 2006. As his Honour noted, Mrs Hart did not put on evidence as to the precise composition of the $14,194.40 October 2006 figure in the documents emailed on 13 October 2006 (at [319]). No doubt that was because the appellants had not alleged that the figures in the 13 October 2006 spreadsheet were false. The issue to which Mrs Hart’s evidence went was the time at which the spreadsheet attached to her email of 13 October 2006 was first shown to Mrs Stariha, not its essential accuracy at that time. Accordingly, it was not necessary that Mrs Hart provide a full explanation for the composition of the $14,194.40 figure. However, had her bookkeeper later been asked to check Mrs Stariha’s revision, any more up to date figures for the current year could have been included. But Mrs Stariha declined that opportunity.

93    For these reasons, grounds 1, 1A, 1B, 2, 3, 4 and 6 fail.

Consideration – Grounds 5 and 11

94    The appellants complained in ground 5 that his Honour erred in finding that Mrs Stariha had been successful in running the Gold Coast business in the period between August 2005 and December 2006 and that this finding was contrary to the evidence.

95    The primary judge found that it was more likely that in the discussion on 5 or 6 October 2006, Mrs Hart had shown, but not given, Mrs Stariha spreadsheets prepared by her bookkeeper, Ms Price that did not include any figures for October 2006. He found (at [749]-[752]) that, over the years, Mrs Stariha erroneously, but genuinely had come to believe that the two sets of figures were the same: cf Watson 49 NSWLR at 319. His Honour explained in those paragraphs what the factual dispute was and why he found as he did. Those reasons were more than sufficiently expressed to justify his factual conclusion. They are cogent and made against the background of his Honour’s detailed earlier description of where and how this factual issue arose and what each witness’ evidence on it was in the context of the documentary evidence (see e.g. at [319], [619]-[625]). Accordingly, there is no reason to conclude that the primary judge erred in his finding, relying on the email of 13 October 2006, that Mrs Hart first provided the figures on 13 October 2006.

96    Fundamentally, the primary judge found that Mrs Stariha proceeded on the basis of her own revision of the figures that Mrs Hart had supplied in the email of 13 October 2006 and not on those figures that Mrs Hart had given her. Mrs Stariha’s own accountant told her that, on Mrs Hart’s (unrevised) figures, the business could possibly be worth between $180,000 and $190,000, but, as he expressed it, that was not a considered valuation. We see no error in his Honour’s finding that Mrs Stariha relied on her revised figures and not on any representation by Mrs Hart.

97    The final complaint, in ground 5, was that his Honour erred in finding that Mrs Stariha had been successful in running the Gold Coast business in the period between August 2005 and December 2006 and that this finding was contrary to the evidence. The appellants refined this ground in their written submissions to an assertion that the Gold Coast business experienced a lack of success in “the period from July 2006 to November 2006 and that the revenue generation of the business was poor to Mrs Stariha’s knowledge particularly in the period July to November 2006.” (emphasis added)

98    If Mrs Stariha knew that the business that she was so keen to buy at a price well above the indicative value ascribed by her accountant was generating revenue poorly, it beggars belief that she increased the revenues in her revised spreadsheet or was enthusiastic to proceed. She was the person, on the spot, who was the income generator for that business. If she knew that its relative performance was deteriorating over this period, it is difficult to think that she could reasonably have acted as she did. And, the appellants’ refined submission on ground 5 entails the consequence that Mrs Stariha knew that there was no foundation for her revised spreadsheet but went ahead regardless: i.e. she was reckless in pursuing the purchase. The submission supports, rather than detracts from, his Honour’s conclusion that she, and not any of the respondents, was the cause of her investment decision on behalf of Julstar.

99    The appellants relied on Mrs Hart’s email to Mrs Stariha of 23 November 2006 that said that no commission was payable for the September 2006 quarter as set out at [35] above. That email made clear to Mrs Stariha the last four months’ actual income performance of the business that she was proposing to buy. However, by itself the document did nothing more than break up expectations of a uniform break even figure for each month of the financial year and compare them to the actual earnings for each month. There is no basis on which the appellants contended that his Honour made some error. The Full Court was not taken to the seasonal earnings fluctuations or some broader financial analysis to indicate how the 23 November 2006 email affected matters.

100    Frontline’s sales consultant figures for the period 1 November 2005 to 31 October 2006 showed that the Gold Coast office had to give replacements credits for nine placements by Mrs Stariha that failed between 18 August 2006 and 24 October 2006, and that the next replacement credit was recorded on 7 December 2006. Four of those nine replacement credits were entered into the Frontline system on 9, 13, 18 and 24 October 2006 in respect of placements that had been billed to clients originally on 9 October 2006, 31 July 2006, 24 July 2006 and 23 October 2006 respectively. These replacement credits are likely to have been reflected in Mrs Hart’s 23 November 2006 email figures and known to Mrs Stariha.

101    The 23 November 2006 email showed that for the month of October 2006, the Gold Coast office appeared to have recovered to a better than break even position. As the data set out at [36] above showed, in the preceding period, from August 2005, Mrs Stariha had been very successful in running the Gold Coast office, so much so that Mr Davis regarded her as a star performer in the Frontline business, as his Honour found (at [761]). Those figures showed very large increases in sales in the first three quarters, and a drop in the fourth, being the September 2006 quarter. The final figures for October 2006 showed an income of $31,404 (including GST) (the same as the 23 November 2006 email had recorded) and for November 2006 of $36,390.00. These sales results appeared to indicate that the Gold Coast business had some fluctuations but that the lull in the September 2006 quarter had been significantly turned around in October and November 2006, when Mrs Stariha was considering and negotiating the purchase.

102    The appellants also relied on Mr Davis’ evidence that, after Julstar began operating the Gold Coast business, she experienced “a bad run of having to replace candidates”. That meant that no income was earned by Julstar for failed placements unless and until a replacement commenced employment. However, that “bad run” occurred after, not before, the purchase and was not known at the time at which the appellants claimed that they acted on the alleged representations. Julstar only earned income after Mrs Stariha ceased to be an employee of Hart Trading on 8 December 2006. This is also shown in the negative income for January 2007 in the table set out at [36].

103    We are not satisfied that his Honour made any error in finding that Mrs Stariha had been successful in running the business that she was interested in purchasing.

104    Nor are we satisfied that his Honour erred in dealing with the actual evidence of failed placements prior to Julstar’s purchase. It follows that grounds 5 and 11 fail.

Consideration – Grounds 7, 8, 9 and 10

105    The challenges to his Honour’s findings concerning Mrs Satriha’s knowledge of the earlier Frontline business that Ellis Trading operated on the Gold Coast have no substance. The appellants argued that the evidence of Ms Knight was insufficient to justify the primary judge’s finding that Mrs Stariha knew of an earlier Frontline business on the Gold Coast. We have set out a summary of the relevant evidence at [8]-[14] above. In our opinion, his Honour’s finding that it was “almost inconceivable” that Mrs Stariha did not know that Ellis Trading had been operating a Gold Coast Frontline franchise prior to Mrs Hart or Hart Trading was open on the evidence.

106    Mrs Stariha knew that Mrs Ellis had operated the Brisbane franchise before Hart Trading because she had applied to Mrs Ellis for a job in 2004 when Ellis Trading was operating the Gold Coast office. In early 2006, Ms Knight told Mrs Stariha orally and in writing that she had worked at a Frontline office on the Gold Coast in 2004 and that the office had closed. In those circumstances, his Honour’s conclusion, that it was almost inconceivable that Mrs Stariha did not know of Ellis Trading’s earlier Gold Coast office when deciding to purchase, was well open to him.

107    For these reasons, we consider that grounds 7, 8, 9 and 10 fail.

Consideration – Ground 15

108    The appellants complained of his Honour’s observation at [760] that he was “more troubled” by Mrs Stariha’s conduct in trying to collect from a client of Julstar money due to Frontline for which she did not account.

109    The primary judge had recorded the circumstances at [590]-[592]. In late 2009, Mrs Stariha placed two candidates with GoGetters, through its principal, Mr Fitzpatrick. Frontline sent GoGetters three separate invoices totalling $6,937.36 for the placements on 23 November 2009, 15 February 2010 and 22 March 2010 that remained unpaid. Consequently, Julstar did not receive any commission from Frontline for its work.

110    The primary judge found that, on 1 September 2010, Mrs Stariha sent an invoice on behalf of Julstar to Mr Fitzpatrick for the unpaid recruitment fees of $6,937.36. The fees were due to Frontline, not Julstar. Mrs Stariha was then doing some “systems work” for Mr Fitzpatrick who said to her that he would “fix you up” for the fees. His Honour noted that Mrs Stariha gave evidence that she was “uncomfortable” about the arrangement because, even though Julstar was entitled to placement fees that were due to it from Frontline, she said that “the replacement credits were greater than the amount coming in” and she thought that it would be “questioned”.

111    Even so, Mr Fitzpatrick remained in default of payment after Julstar’s issue of the invoice. On 28 January 2011, Mrs Stariha sent him an email asking that he pay Julstar’s invoice for the fees that day, else she would regard both of them as being in dispute from the following Monday. His Honour found that:

“Mrs Stariha accepted that her arrangement with Mr Fitzpatrick was, first, that he would pay her the amount actually due to [Frontline] for the two placements and at the same time (“although separately”) he would be paying her for other “systems work” she would be undertaking, and second, if [Frontline]:

… ever came against you for these [placement] monies you received, Mr Fitzpatrick had the view, as expressed to you, that you would have to deal with Frontline.

Mrs Stariha accepted that she had never paid the money to [Frontline].”

112    The appellants asserted in their written submissions that the placement fees were not payable by GoGetters to Frontline as a matter of law. However, during argument their senior counsel was unable to identify any foundation for that assertion.

113    Mrs Stariha acknowledged in cross-examination that the provisions of cl 2.38.2 of the franchise agreement (set out at [41] above) was the method of billing clients. That clause prohibited a franchisee from issuing an invoice directly to a client and entitled Frontline to payment of the whole invoiced amount.

114    In our opinion, the appellants failed to demonstrate that his Honour made any error in expressing his concern at this deliberate and conscious conduct by Mrs Stariha that resulted in her or Julstar keeping the money due to Frontline and Julstar’s not accounting for it. Ground 15 consequently fails.

Consideration – Claim 18

115    On 8 March 2010, Mr Davis sent an email to the Australian Competition and Consumer Commission that, among other matters, set out a chronology of the dates of amendment of versions of Frontline’s disclosure documents in relation to the Aura proceedings. The chronology revealed that those proceedings had been served on 30 March 2005.

116    Ms Briede gave evidence that she would have made a record had she sent any disclosure document to Mrs Stariha earlier than 23 November 2006. She said that it was quite common for franchisees to be confused between a non-disclosure agreement and a disclosure document. The primary judge found at [246]-[247] that, on 18 October 2006, Ms Briede had sent Mrs Stariha an email attaching a non-disclosure agreement “in order to release a perusal Franchise Agreement to you”.

117    On 20 October 2006, Ms Briede emailed Mrs Stariha acknowledging receipt of the signed non-disclosure agreement and attaching a perusal franchise agreement with maps of the franchise territories for the Gold Coast and Brisbane (see [250]-[251]).

118    On 23 November 2006, Frontline wrote to Mrs Stariha enclosing two copies for signing of the franchise agreement and a deed of confidentiality and non-competition. Although the letter said that a copy of a disclosure document was also enclosed, later that day Frontline’s Ms Briede sent Mrs Stariha an email saying that she had just realised that she had not enclosed the disclosure document with the letter. Ms Briede wrote that she had since put a hard copy of the disclosure document in the mail. Mrs Stariha accepted that she had received a disclosure document on 24 November 2006. However, as the primary judge found at [776], she strongly believed that she had received a disclosure document that was Exhibit 3 in October 2006. His Honour found that she was confused about this and that she only received one disclosure document, being Exhibit 3 (or Version 10) on 24 November 2006.

119    That finding has the objective support that the cover page of Exhibit 3 is dated “November 2006” and the footers in it read “Disclosure Document V10 1106” – i.e. version 10, November 2006. However, on page 2 the date of the document was stated as 30 September 2006.

120    Notably, Mrs Stariha did not produce any email, letter or other communication that showed that she received a disclosure document in October 2006. However, as his Honour recorded at [288], Mrs Stariha asserted that in the second or third week of October 2006 she had received by post from Frontline a perusal copy of the franchise agreement and a disclosure document and that she took these to her solicitor in the second half of October 2006. She said that she received both those documents back from her solicitor before 6 November 2006 and read them on her way to Sydney for discovery day.

121    His Honour recorded that at another point in her witness statement in reply, Mrs Stariha asserted that she had received both documents attached to an email that she had not kept (see [290]). She also gave evidence that, after receiving the documents that Ms Briede had sent on 23 November 2006, her solicitor told her to put those side by side with the versions of the documents that she had received in October 2006 to make sure that they were identical and that she did so. However, Mrs Straiha could not be confident that she checked the title pages or version “codes” of the two disclosure documents that she claimed then to have had. The solicitor told her that she was welcome to bring all the documents for him to check but she responded that, as she had already decided to buy the franchise, she did not think that there was any point in doing so. Mrs Stariha said that she had disposed of the October 2006 copy of the disclosure document when having a clean-up on moving offices.

122    The appellants argued that, because no version of a disclosure document, in the form of Exhibit 3 signed by Mrs Stariha to acknowledge its receipt, was in evidence, the primary judge erred in finding that Mrs Stariha had received such a disclosure document only once on 24 November 2006, and not before. They also contended that, despite the November 2006 date and footer on Exhibit 3, the true date of creation of Version 10 was 30 September 2006.

123    The appellants’ argument must be rejected. First, we are unpersuaded that the primary judge made any error in his findings about Exhibit 3, its receipt by Mrs Stariha on 24 November 2006 and that she was confused about when she received that document. His Honour set out clear, cogent reasons for his findings that were open on the evidence, and in our opinion, in any event, those findings were also correct.

124    Secondly, Version 9 of the disclosure document has the date “September 2006” on its front page and a footer “Disclosure Document V9 0906” together with the statement on page 2 that its date was 30 September 2006. It also refers to the Aura proceedings in cl 4.1(a) and the fact that they were to be heard in December 2006. There is no reason why, had a disclosure document been sent to Mrs Stariha in October 2006, it would not have been Version 9.

125    Thirdly, Ms Briede’s evidence showed the documentary flow and supported her observation that franchisees could become confused with their initial receipt of, and need to deal with, a non-disclosure agreement, in order to be given a perusal copy of a franchise agreement. For these reasons, ground 18 also fails.

Conclusion

126    For the reasons above, the appeal be dismissed with costs.

Associate:

Dated:    13 November 2014