FEDERAL COURT OF AUSTRALIA

 

Australian Competition & Consumer Commission v 4WD Systems Pty Ltd [2003] FCA 850

 

TRADE PRACTICES – franchising – misleading conduct – obligation to disclose – false statements as to source of goods – assumption in market place of place of manufacture – obligation to disclose changes to place of manufacture – unconscionable – breach of franchising code – remedies – injunctions – when appropriate

Trade Practices Act 1974 (Cth) ss 51AA, 51AC, 51AD, 52, 53, 80, 87

Evidence Act 1995 (Cth) s 95, s 97

Trade Practices (Industry Codes – Franchising) Regulations 1998

Sanders v Glev Franchises Pty Ltd [2002] FCA 1332

Grivas v Brooks (1997) 69 SASR 532

Jacara Pty Ltd v Perpetual Trustees WA Ltd (2000) 106 FCR 51

James v Australia and New Zealand Banking Group Ltd (1986) 64 ALR 347

Fraser v NRMA Holdings Ltd (1995) 55 FCR 452

South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31

Watson v Lee (1979) 144 CLR 374

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1376

Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253

Hurley v McDonald’s Australia Ltd [1999] FCA 1728

Jamieson v The Queen (1993) 177 CLR 574

Westpac Banking Corporation v Northern Metals Pty Ltd (1989) ATPR 40-953

Trade Practices Commission v Mobil Oil Australia Ltd (1985) 4 FCR 496

ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248

Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1

Australian Competition and Consumer Commission v Top Snack Foods Pty Ltd (1999) ATPR 41-708

Australian Competition and Consumer Commission v Virgin Mobile Australia Pty Ltd  [2002] FCA 1548

Australian Competition and Consumer Commission v Grant [2000] FCA 1564

Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589

Australian Competition and Consumer Commission v Shell Co of Australia (1997) 142 ALR 569

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v4WD SYSTEMS PTY LTD ACN 008 134 861 and ORS

S 170 of 2001

 

SELWAY J

13 AUGUST 2003

ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY		S 170 OF 2001
BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	4WD SYSTEMS PTY LTD ACN 008 134 861 FIRST RESPONDENT 4WD SYSTEMS AUSTRALIA PTY LTD ACN 085 343 219 SECOND RESPONDENT RALEIGH JULIAN HOBERG THIRD RESPONDENT THOMAS DAVID HEWITSON FOURTH RESPONDENT

 

JUDGE:	SELWAY J
DATE OF ORDER:	13 AUGUST 2003
WHERE MADE:	ADELAIDE

 

THE COURT DECLARES THAT:

 

1.         The first respondent engaged in conduct in trade or commerce which was misleading in breach of s 52 of the Trade Practices Act 1974 (Cth) in that: 

(a)        as to Beresfield Automotive Services Pty Ltd in the period June-July 1998, the first respondent failed to inform that company that the first respondent would not comply with the usual industry standard as to the time for supply in circumstances where such failure constituted conduct which was misleading.  

(b)       As to the partnership trading as Elston On & Off Road Access in the period June-July 1998, the first respondent made representations to the partnership as to the time for supply and as to the quality of goods which representations were misleading.

(c)                    As to the partnership trading as P & G Customising, the first respondent in a letter dated 19 February 1999, made representations to the partnership as to quality of goods which representations were misleading.

2.         The second respondent engaged in conduct in trade or commerce which was misleading in breach of s 52 of the Trade Practices Act 1974 (Cth) in that in the negotiations between the second respondent and HDR Associates Pty Ltd (as trustee for J & J Trust), the second respondent failed to inform HDR Associates Pty Ltd that it did not and would not comply with the usual industry standards as to the time for supply .

3.         The first respondent, in trade and commerce and in connection with the supply of goods made a misleading representation concerning the place of origin of goods in breach of s 53(1)(eb) of the Trade Practices Act 1974 (Cth) in that:

(a)        the first respondent represented to Mr Atkins of Beresfield Automotive Services Pty Ltd that the Australian made Lock Right product was the ‘exact same product’ as the US made product;

       (b)       the first respondent advertised in various four-wheel drive magazines from July-December 1999, that the Lock Right product being supplied by the first respondent was the US made ‘Powertrax’ product when an increasing proportion of the product supplied over that period was the Australian made product manufactured by the first respondent;

       (c)        the first respondent did not inform the franchisees and others in or before July 1999 that as from July 1999 some of the product that the first respondent would supply in response to orders for Lock Right products would be Australian made product rather than US made product in circumstances where the market understanding and expectation was that the product was made in the US. 

4.         On or about February 1999, the first respondent, in trade and commerce, contravened the Franchising Code of Conduct in not providing Disclosure Documents to the partnership trading as P & G Customising as required by cl 6 and cl 10 of the Franchising Code of Conduct and in not obtaining from him a written statement as required by cl 11 of the Franchising Code of Conduct, contrary to s 51AD of the Trade Practices Act 1974 (Cth).

THE COURT ORDERS THAT:

1.         For a period of three years from the date of this order, the first and second respondents be restrained from selling or granting franchises or rights for the distribution of products and services unless at or prior to the time at which the first or second respondent is required to provide the Disclosure Document in accordance with the Franchise Code:

            (a)        there is disclosed to the person to whom the Disclosure Document must be produced the details of the methods of manufacture and distribution adopted by the first or second respondent sufficient to inform that person:

            (i)         of whether the quality of goods produced is or are likely to be different from what would otherwise be reasonably expected in the industry;

            (ii)        of whether the time for delivery of goods produced is or is likely to be different from what might otherwise be reasonably expected  in the industry.

            (b)        There is disclosed to the person details of the number and type of all complaints:

            (i)         received by the first or second respondents within 12 months of the day upon which the disclosure is made;

            (ii)        made by a franchisee or person having a right of distributorship given by the first or second respondent; and

            (iii)       related to alleged poor or inadequate quality of goods produced or supplied or alleged delays in the production or supply of goods.

            (c)        there is disclosed to the person the terms of these orders.

2.                  For a period of three years from the date of this order, if the third respondent, Raleigh Julian Hoberg is in any way concerned in the sale or prospective sale of a franchise by a corporation, the said Raleigh Julian Hoberg do ensure or take all such steps as are reasonably open to him to ensure that the corporation discloses the existence of these proceedings and the terms of these orders to the purchaser or to any prospective purchaser of that franchise.

3.                  The application by the Australian Competition and Consumer Commission pursuant to s 87 of the Trade Practices Act 1975 (Cth)for refunds and/or compensation on behalf of specified franchisees of the first and second respondents is dismissed.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 170 OF 2001

 

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	4WD SYSTEMS PTY LTD ACN 008 134 861 FIRST RESPONDENT 4WD SYSTEMS AUSTRALIA PTY LTD ACN 085 343 219 SECOND RESPONDENT RALEIGH JULIAN HOBERG THIRD RESPONDENT THOMAS DAVID HEWITSON FOURTH RESPONDENT

 

JUDGE:	SELWAY J
DATE:	13 AUGUST 2003
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

1                     The issues for decision in this case are whether the first or second respondents have:

·               engaged in misleading or deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth)(‘TPA’); and/or

·               made any false or misleading statements that goods were of a particular standard, quality, grade, composition or model in breach of s 53(a) of the TPA; and/or

·               behaved unconscionably in breach of s 51AA(1) and/or s 51AC(1) of the TPA; and/or

·               contravened an applicable industry code contrary to s 51AD of the TPA.

And whether the third or fourth respondents have relevantly aided and abetted or been involved in any such behaviour.

2                     It is my view for the reasons given below that the first respondent has breached ss 51AD, 52 and 53 TPA and that the second respondent has breached s 52 TPA, but that the breaches are not as extensive as alleged by the applicant in its pleadings.  I am not satisfied that the conduct of the first or second respondent can properly be described as ‘unconscionable’ for the purpose of s 51AA or s 51AC TPA.  It is also my view that the third respondent was relevantly ‘involved in’ the relevant breaches of the TPA by the first and second respondents.

3                     For the convenience of the parties and others who may need to consider these reasons, I have inserted footnotes containing references to the transcript and exhibits.  The references are not intended to be comprehensive.

Background

4                     As the trial developed it became apparent that the parties were in general agreement in relation to much of the evidence.  It will be necessary to consider some of the evidence in more detail in due course.  Before doing so it is appropriate to describe the factual background at least in broad terms. 

5                     Ever increasing numbers of otherwise ordinary and sensible purchasers of ‘family’ automobiles have found commercial and pseudo-military style vehicles attractive.  Motor vehicles described as ‘four-wheel drive’ vehicles have become very popular.  One effect of that increasing popularity would seem to be a growth in the manufacture of and trade in parts and accessories for these vehicles. 

6                     In and prior to 1995 the first respondent operated a business of selling and fitting parts for four-wheel drive vehicles[1].  It manufactured some parts, particularly those involving metal fabrication such as bull-bars and fuel tanks.  It obtained other parts from suppliers.  As appears to be common practice in the industry it sometimes ‘re-badged’ such goods as its own[2].  It sold these products directly from its own premises, by mail order and through various stockists and distributors.

7                     The third respondent, Mr Hoberg and the fourth respondent, Mr Hewitson were both shareholders, directors and employees of the first respondent and subsequently the second respondent at all relevant times[3].  Mr Hewitson had the general responsibility for the day to day commercial operations of the company; Mr Hoberg managed the ‘back office’ functions and had specific responsibility for strategic planning[4].

8                     In about 1996 or 1997, as part of a more general strategy of business growth[5], the first respondent began to develop a more intensive system for the distribution of its products[6].  This was described by it as a ‘franchise system’, but up until final oral submissions the parties were in dispute as to whether this was its correct legal characterisation.  This will need further consideration later in these reasons.  For present purposes it is probably sensible to use the terms that the first respondent used at the time, but to use those terms in quotation marks to make it clear that the meaning may be a specialised one.  The ‘franchise system’ had a number of benefits to the first respondent over the previous distribution system using what were then described as ‘stockists’.  In particular, the ‘franchise system’ was expected to give rise to more loyalty and more control to the first respondent[7].  This ‘franchise system’ developed and evolved over time.  The first ‘franchises’ were established in about 1996.   These included Four-Wheel Drive Systems at Murray Bridge, Four-Wheel Drive Systems in Millicent and then later Four-Wheel Drive Systems in Berri.  It would appear that these ‘franchisees’ were and are content with their relationship with the first respondent.

9                     During 1998 and 1999, the first respondent increased its efforts to expand its ‘franchise system’.  It entered into ‘franchise’ arrangements with the following bodies or persons on the following dates[8]:

 

‘Franchise Business’	‘Franchisee’	Date of Agreement
Four-Wheel Drive Systems Hunter Valley (NSW)	Atkins (Beresfield Automotive Services Pty Ptd)	July 1998
Four-Wheel Drive Systems Alice Springs (NT)	Elston (partnership t/a Elston On & Off Road Access)	September 1998
Four-Wheel Drive Systems Auburn (NSW)	Page (t/a GRP Automotive)	September 1998
Four-Wheel Drive Systems Rockhampton (Qld)	Tucker (partnership t/a P & G Customising)	February 1999; September 1998
Four-Wheel Drive Systems Canningvale (WA)	Carroll (HDR Associates Pty Ltd as trustee for J & J Trust)	September 1999

 

The applicant claimed that the first respondent had also entered into a ‘franchise’ arrangement with Mr Werner (in partnership with his wife t/a Four-Wheel Drive Systems, Terralgon) in February 2000, but this was disputed by the first respondent.  The details of this arrangement will be considered in more detail later.

10                  For convenience the parties referred to the ‘franchises’ and the ‘franchisees’ by referring to the person called to give evidence in relation to that business.  So, for example, the business of Four-Wheel Drive Systems Hunter Valley owned by Beresfield Automotive Services Pty Ltd was described as Mr Atkin’s business and was treated as if owned by him alone.  For convenience I shall do the same in these reasons.  However, for those reading these reasons the reference to the relevant witness may be a shorthand description of the relevant owner and/or the relevant business.

11                  The ‘franchise system’ continued to develop over the period during which the first respondent entered into the above ‘franchises’.  For example, template contracts and other legal documents were gradually developed over the period 1998-2000.

12                  There is some dispute between the parties as to what representations were made in relation to particular ‘franchises’.  There is also some dispute as to the conditions upon which those ‘franchises’ were granted.  It will be necessary to return to this in due course.  But there is substantial agreement on at least some of the terms and conditions of the ‘franchises’.  In order to obtain a ‘franchise’ the ‘franchisee’ in most cases travelled to Adelaide and had a detailed discussion with the third respondent.   In order to obtain the franchise they had to pay what was variously described as a ‘franchise fee’ or an ‘establishment fee’.  These seem to have been quite variable.  The fee for Mr Elston was $5,000; for Messrs Atkins and Tucker it was $7,500; for Mr Carroll it was $20,000 and for Mr Page it was $25,000[9].  They were also required to purchase an initial amount of stock from the first respondent.  Again this seems to have been variable. The ‘franchisees’ were required to use similar trading names.  They were also required to submit any advertising to the first respondent for approval. 

13                  In return the ‘franchisees’ were to receive at least the following:

·               The right to use the ‘4WD Systems’ name.

·               The right to obtain product from the first respondent at the ‘franchisee’ price[10].

·               The exclusive right to trade in at least some of the first respondent’s product in the ‘franchise area’[11].  The extent of that right may have differed between ‘franchisees’.  This is discussed further below.

·               Assistance in setting up their ‘franchise’ business, including the assistance of the third respondent at an Opening Day designed to launch the business.

·               Training by the third respondent[12].  The extent and nature of that training is in dispute.

Other representations were made.  The extent of them, what they were and the extent to which they were relied upon or were breached is in dispute.

14                  There is no doubt that some of these representations were properly met.  For example the third respondent provided personal assistance to the relevant ‘franchisee’ at opening days.  All of the ‘franchisees’ who gave evidence were satisfied with that assistance, to a greater or lesser extent.  In each case this involved a significant effort by the third respondent, usually travelling by motor vehicle from Adelaide to ‘the franchise’ premises and staying with the ‘franchisee’ for a couple of days to assist in sales and to provide training.

15                  On the other hand, the ‘franchisees’ called by the applicant all gave evidence of concerns with the extent of training that they received, with the quality of the goods they received from the first respondent and with the timeliness of supply from the first respondent.  Some of them had other particular concerns.  All of these concerns are discussed in more detail later in these reasons. 

16                  Also during the relevant period there were changes in the applicable legislation.  From 1 July 1998 a Franchising Code (‘the Code’) was prescribed by regulation made pursuant to s 51AE of the TPA.  The Code was set out in a schedule to the regulations.  The regulations were notified in the Gazette of 25 June 1998, pursuant to the Statutory Rules Publication Act 1903 (Cth).  I am informed that the Code was generally available for purchase soon after.  The Code was prescribed to come into operation from 1 October 1998.  Mr Hoberg gave evidence that he or his advisers were unable to obtain a copy of the Code until after 1 October 1998 and that this was one of the reasons why the respondents were unable to comply with it.  However, in their written submissions to me the respondents accepted that copies of the Code were generally available at least from August 1998. 

17                  The first respondent experienced some delays in being able to comply with the requirements of the Code, particularly in relation to the provision of contracts. This was a matter of particular concern to at least some of the ‘franchisees’ called by the applicant.  This is discussed in more detail later.  However, some of the legal issues that have been argued before me, such as the question whether the arrangements can properly be characterised as franchises for the purpose of the TPA and the date of commencement of the arrangement with Mr Page at Auburn, NSW, are relevant primarily because some provisions of the Code did not have application to some events or arrangements entered into prior to 1 October 1998.

18                  One matter of relevance in relation to the development of the franchise system was the role of the second respondent.  As part of the development of the formal documentation for the franchise system it was envisaged that the documented franchise would be entered into by the second respondent[13].  Mr Hoberg gave evidence that the second respondent had a contract with the first respondent for this purpose.  The details of this arrangement were not explained to me[14].  For present purposes it is sufficient to say that only two prospective franchisees, Messrs Carroll and Werner, were sent the relevant documentation[15].  As discussed later only Mr Carroll actually executed the franchise agreement.  So far as the evidence reveals no other prospective franchisees were even aware of the existence of the second respondent[16].  The significance or otherwise of this will need to be considered in due course. 

19                  One particular product supplied and distributed by the first respondent was the ‘Lock Right’ diff lock.  The differential of a motor vehicle is designed so that power is not transmitted to an axle when that axle is not bearing its usual load, such as during cornering.  The purpose of a diff lock is to lock the differential in appropriate circumstances, such as driving over difficult terrain, so as to ensure that in those circumstances power continues to be transmitted to both axles[17].  The first respondent held the Australian rights to the Lock Right diff lock. 

20                  Prior to October 1998, the ‘Powertrax’ Lock Right diff lock was purchased by the first respondent from a particular US supplier[18].  For convenience I will refer to the US manufactured ‘Lock Right’ as the ‘Powertrax’ diff lock.  The first respondent was the sole Australian distributor of the Powertrax.  It was distributed and sold by the first respondent in the box from which it was received from the US.  This packaging was orange and blue, included the name ‘Powertrax Lock Right’ and specified that the product was made in the US.  It was a popular product – probably the most popular product handled by the first respondent[19]. 

21                  In about October 1998, that supply arrangement for ‘Powertrax’ between the US supplier and the first respondent broke down[20].  The US supplier appointed another four-wheel drive accessory company, TJM, to be its exclusive distributor in Australia.  Whether or not this was lawful given the rights held by the first respondent is not an issue in these proceedings.  What is important in these proceedings is that 4WD Systems was no longer able to access the product directly from its usual US supplier.  The first respondent adopted two strategies to deal with the problem this presented.  The first interim strategy was to obtain ‘Powertrax’ from elsewhere; the second longer term strategy was to manufacture its own Lock Right[21].

22                  In the period October 1998 to March 1999, the first respondent sought the ‘Powertrax’ from other sources in the US[22].  Initially the first respondent continued to sell such product as it could obtain in the ‘Powertrax’ packaging[23].  As is discussed in more detail later in these reasons this strategy resulted in some delays in obtaining product.

23                  In about March 1999, the first respondent introduced new packaging[24].  The new box had the name ‘Lokka Lock Right’ printed on it and purported to be from 4WD Systems.  There was no mention of the place of manufacture.  At the time the new box was introduced all the Lock Right product sold by the first respondent was the US ‘Powertrax’ obtained from other sources in the US.  This was repacked in the new box.

24                  Starting in about October 1998, the first respondent was also actively pursuing another strategy.  This was for it to self-manufacture an equivalent diff lock.  This was a relatively difficult and expensive process[25] which took many months of design, setting up and testing before any significant production could begin[26].   

25                    The manufacture for retail sale of the first diff locks manufactured by 4WD Systems commenced in about July 1999[27].  The number of models of diff lock manufactured by the first respondent increased steadily thereafter.  As the Australian made product became available it replaced the equivalent US Powertrax product.  The Australian made product was sold in the same ‘Lokka Lock Right’ package as had been the US made Powertrax since the repackaging of the Powertrax had commenced in March 1999.

26                  The Australian made product was clearly distinguishable from the US made product[28].  Although the pleadings would suggest that the respondents proposed to dispute any such difference, the evidence given by the third and fourth respondents before me is that the Australian manufactured product was quite distinct and different from the US product.  All of the witnesses, including the third and fourth respondents, claimed to be able to tell them apart[29]. 

27                  There was some suggestion in the cross-examination of Mr Page that ‘Powertrax manuals’ were included in the new packaging when the product was ‘Powertrax’[30].  This was not a matter that was covered in the statements prepared by the respondents; nor was it a matter that had been put to any of the preceding witnesses.  On that basis I disallowed the questions.  As it happens the question of what manuals were included does not matter.  The product in the box could be distinguished whether or not the manuals were also different.

28                  In about March 1999, the first respondent commenced a major marketing promotion to increase the sales of diff locks[31].  This included selling them at a much reduced price[32].  The purpose of the promotion was to undercut the new Australian distributor of the ‘Powertrax’ and to create new business for the ‘franchisees’[33].   Sales of diff locks increased considerably. 

29                  From soon after the commencement of the promotion almost all diff locks were supplied in a ‘Lokka’ box[34].  After March 1999, any ‘franchisee’ who ordered the ‘Powertrax’ or the ‘Lock Right’ or a diff lock from the first respondent, was supplied with the product in the ‘Lokka Lock Right’ box.  The relevant product was either a US sourced product exactly the same as that previously supplied in the ‘Powertrax’ box, or, from July 1999, could be the distinguishable Australian made product[35].  I note in this regard that some of the evidence of, and some of the pleadings for, the respondents seemed to suggest that the product supplied after March 1999, was different from that provided before it because the box was different[36].  Of course, the product being purchased was the product in the box.  As already noted the change in the packaging did not mean that the product inside had changed.  

30                  For various reasons all of the ‘franchisees’ called as witnesses by the applicant discontinued their dealing with the first respondent during 1999 or 2000.

The Witnesses

31                  As is common practice in this Court, the evidence called in chief had been reduced to writing and was in the form of affidavits.  Prior to trial orders had been made for the production and exchange of those written statements.  Orders had also been made limiting the evidence in chief that could be called by any party to that evidence which was contained in the written statements and to documents which had been annexed to those written statements.

32                  These orders had some effect upon the way the trial proceeded.  Most importantly they reduced the extent and number of issues between the parties.  For example, although the statement of claim filed by the applicant seeks damages for the losses suffered by the ‘franchisees’ under various heads, in fact the witness statements generally only deal with the ‘franchise fees’ they had paid.  The orders that had been made effectively precluded the applicant from seeking to prove any other damage.  Obviously this limited the issues.

33                  The orders as to further evidence also meant that many of the apparent disputes between the parties as reflected both in the pleadings and in the witness statements as to the relative causes of the financial failure and/or losses suffered by various of the ‘franchisees’ were no longer relevant or, even if relevant, no longer capable of being proved.  Similarly, much of the respondent’s case seems to have been directed to the question whether the franchisees had sufficient stock on hand to meet their customer’s requirements.  It may be true that at least some of the franchisees were undercapitalised and had inadequate stock on hand to meet the needs of their customers.  This issue may have been relevant if the task before me was to apportion blame between the respondents and the franchisees for any delay suffered by the ultimate customers.  However, in the absence of evidence as to what loss was suffered, the issue before me is whether the first respondent breached any representations it made in respect of the time it would take to supply goods to the franchisees.  Notwithstanding the time spent on it, the question whether the franchisees had sufficient or appropriate stock on hand for them to trade successfully is not a question that I need to deal with. 

34                  A related issue which took up considerable time was the suggestion made by the respondents that at least part of the reason for any delay in supply by the first respondent to the ‘franchisees’ was that they were on ‘stop credit’.  To a certain extent this suggestion, even if true, would still have required analysis as to whether the reason for any cashflow problems being experienced by the ‘franchisees’ which resulted in their being on ‘stop credit’ was the delay in supply by the first respondent.  However, the factual basis for the suggestion was not made out[37]. 

35                  The end result was that the financial position of the ‘franchisees’ was not established.  It will be necessary to return to this matter in relation to whether compensation is payable, but otherwise the issue of the financial position of the franchisees does not need to be further analysed in these reasons. 

36                  Other issues which were dealt with at some length in the written statements were ultimately not relevant.  For example, a number of the statements filed and tendered by the respondents apparently dealt with the issue of whether the first respondent had various intellectual property rights to the ‘Powertrax’ Lock Right diff lock.  This may have been the result of a lack of clarity in some paragraphs of the statement of claim, although there also seems to have been some misunderstanding by the respondents as to the nature of the case they had to meet.  In any event it was clear that there was, in fact, no relevant dispute about the first respondent’s intellectual property rights.  Again this meant that some witnesses did not need to be called.

37                  Notwithstanding the orders that were made and the attempts made by the Court and the parties to limit the extent of the dispute, the hearing still took 18 days.  Almost all of this time was taken up in cross-examination of the various witnesses who gave evidence.

38                  Much of that cross-examination was directed to credit, but with limited success.  It is unnecessary to discuss in any detail the demeanour or credibility of most of the witnesses.  All witnesses appeared to me to be seeking to tell the truth about the facts as they remembered them[38].  Some of them had better memories than others.  None of them had an absolutely accurate memory – indeed none of them claimed that they did.  Almost all witnesses disavowed some aspects of their written statements.  In all cases the written statements seem to be expressed with a degree of precision and exactness of recall that the witnesses disowned when under cross-examination.  I did not find this surprising.  Nor does it lead me to doubt their honesty.   I have generally preferred their oral evidence to their written statements where they differ.  In relation to all witnesses I have made some allowance for forgetfulness.  Given the length of the hearing there is surprisingly little disagreement about material facts.  Where I have thought it necessary to analyse any such disagreement I have expressly dealt with it below.  Where I have not done so I have preferred the witness whose evidence is consistent with my findings.

39                  The only witness that it is necessary at this stage to say something about is Mr Hoberg, the third respondent.  The applicant’s submissions involved the allegation that he was ‘deliberatively manipulative and using dishonest means’ for the purpose of his own private gain.  This is reflected in the express pleading by the applicant that the respondents had made ‘fraudulent misrepresentations’.  I reject any such allegation.  I do not find that Mr Hoberg was deliberately dishonest or manipulative in his dealings with the ‘franchisees’.  Mr Hewitson described him as a ‘sales type person’ who had an optimistic approach to issues[39].  This would seem to me to be a fair comment which is generally borne out by the evidence.  Some of Mr Hoberg’s statements and comments both orally and in writing to the franchisees and to others were optimistic or they contain hyperbole.  A good example of this in a relatively neutral context is an e-mail that Mr Hoberg sent to a Mr Cole in which he refers to the first respondent being in ‘dire need of stock’[40].  Mr Hoberg explained that this was merely his manner – the company was not, in fact, in ‘dire need’[41].  Given the circumstances in which the company was placed at that time, being in the midst of a major promotion of the Lock Right, it is plain that its needs to obtain stock were real and significant.  Nevertheless, I accept Mr Hoberg when he says that the need was not ‘dire’ and that this exaggeration was part of his manner.   One can see the same exaggeration and hyperbole in some of the representations made to the prospective franchisees.  Some of this exaggeration can be treated as being mere puffery, notwithstanding that the applicant has brought proceedings in relation to it.  Indeed, Mr Elston referred to Mr Hoberg as a ‘man with a dream’[42].  Some of Mr Atkin’s evidence was to the same effect[43].  And, of course, mere puffery is not misleading: see Sanders v Glev Franchises Pty Ltd [2002] FCA 1332.  On the other hand, there is an obvious danger that some of the prospective ‘franchisees’ may have been misled by comments and statements made by Mr Hoberg which reflect his manner and which were optimistic and exaggerated. It will be necessary to return to this in due course.

40                  The actions of Mr Hoberg came closest to being ‘deliberately manipulative’ and dishonest in relation to the ‘secret’ development of the Australian made Lock Right.  This is discussed in more detail below.  However, even in this case the actions of the respondents can be explained by their belief that they were legally entitled to do what they did.  As I find below, the respondents were wrong in that belief, but the belief they held refutes the allegation of fraud made by the applicant.  

41                  Mr Hoberg’s evidence was not assisted by his continual habit of seeking to put a submission rather than to answer the question he was being asked[44].  But as he said, that also was his ‘manner’[45] and I do not make any finding against his honesty on that ground.  On the other hand, given that it was his manner, I have taken that manner into account in determining what actually happened in relation to events in which he was involved.

42                  Having considered his affidavit evidence and his oral evidence I have concluded, however, that Mr Hoberg is a person who, having reached an opinion, continues fixedly to hold it no matter what evidence may be produced to show the contrary.  His evidence concerning the poor payment record of the franchisees as a justification for delays in delivery was just one example of this[46].  Another was his evidence of what was said to whom and when about the change from the ‘Powertrax’ to the Australian manufactured diff lock.  His affidavit was clearly based on his view that the US and the Australian made product was exactly the same.  His oral evidence was that it was not exactly the same.  One of the important ramifications of this change was that statements that Mr Hoberg was said to have made that the product was the same could only still have been true if the statement was made prior to July 1999.  As might be expected Mr Hoberg had considerable difficulty in trying to reconcile the evidence in his affidavit with his oral evidence[47]. Nevertheless, having come to the view that his evidence was the truth, he did not resile from it notwithstanding its inconsistency.  This is to be contrasted with Mr Hewitson.  Faced with the same difficulty, he admitted that his affidavit evidence was wrong[48].

43                  Having concluded that at least some of Mr Hoberg’s evidence involved the dogged maintenance of fixed opinions, I have made even greater allowance in relation to Mr Hoberg’s evidence than in relation to other witnesses.

44                  It is also sensible here to discuss some issues in relation to Mr Vickers’ evidence.  He had considerable experience in the sale of accessories for four-wheel drive vehicles.  He worked for the first respondent between April 1998 and September 1999.  He handled much of the contact between the first respondent and the ‘franchisees’.  He left the employment of the first respondent to take up a position with one of the ‘franchisees’, Mr Tucker.  Like other witnesses, his recollection of matters of detail was not always accurate. 

45                  One issue which was dealt with in Mr Vickers’ evidence and which was apparently controversial was the cause of some of the problems being experienced by the first respondent.  Mr Vickers ascribed this cause to inadequate cash flow in the first respondent’s business[49].  Although I am certain that Mr Vickers honestly believed that this was the cause, I am satisfied that Mr Vickers would not have had a sufficient understanding of the financial details of the business of the first respondent for him to be aware of its cash flow position.  I return to the issue of the causes of the problems being experienced by the first respondent later in these reasons.

46                  Much of Mr Vickers’ evidence, both in his affidavits and in cross-examination, related to the change in the packaging and place of manufacture of the diff lock.  By the end of the trial the parties were basically in agreement on that issue.  That agreement was generally consistent with Mr Vickers’ evidence.  The only factual issue in relation to this topic on which there is still disagreement is the claim by Mr Vickers that the packaging or repackaging of US based Lock Right diff locks was done by the third respondent at his home.  The third and fourth respondents say it was done by them at the factory after hours[50].  I am not satisfied that Mr Vickers was in a position to know what the third and fourth respondents did out of hours or where they did it.  On that issue I accept the evidence of the third and fourth respondents.  However, I do not think that the issue is of any particular relevance to the case at hand.  I only mention it because of the time spent on it.

The Business System of the First Respondent

47                  The action pleaded against the respondents independently recites the representations made to each of the ‘franchisees’ (including Mr Werner) called by the applicant.  The question then arises whether the evidence of each of the ‘franchisees’ can be used to reinforce and support the evidence of the others.  It would appear that that would have been possible at common law: Grivas v Brooks (1997) 69 SASR 532.  However, s 97 of the Evidence Act 1995 (Cth) (‘Evidence Act’) provides:

‘(1)   Evidence of the character, reputation or conduct of a person, or a tendency that a person has or had, is not admissible to prove that a person has or had a tendency (whether because of the person’s character or otherwise) to act in a particular way, or to have a particular state of mind, if:

         (a)     the party adducing the evidence has not given reasonable notice in writing to each other party of the party’s intention to adduce the evidence; or

         (b)     the court thinks that the evidence would not, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value.

(2)     Paragraph (1)(a) does not apply if:

         (a)     the evidence is adduced in accordance with any directions made by the court under section 100; or

         (b)     the evidence is adduced to explain or contradict tendency evidence adduced by another party.’

48                  Where evidence is admissible for some other purpose it cannot be used to prove a tendency unless it complies with the requirements and conditions of s 97: see s 95 of the Evidence Act.

49                  The effect of s 97 of the Evidence Actwas explained by the Full Court of this Court in Jacara Pty Ltd v Perpetual Trustees WA Ltd (2000) 106 FCR 51 (‘Jacara’).  That case involved the question whether a landlord had misrepresented the attributes of a certain shopping centre to the plaintiff.  The plaintiff sought to call evidence of statements made to other prospective tenants of the shopping centre in an attempt to prove that it was more likely than not that the landlord had made the same statements to the plaintiff.  The Full Court held that the evidence should not have been admitted for that purpose.  In the leading judgment of Sackville J he drew attention to the difference between the use of evidence so as to establish a propensity or tendency and its use to establish how a business system operated in practice.  (See at [62]‑[67]).  In particular Sackville J warned of the danger of using tendency evidence to establish a business practice.  At [65]-[67]:

‘In my view, evidence of conduct does not become relevant for a purpose other than proving that a person had a tendency to act in a particular way merely by asserting that the evidence tends to establish a system or business practice. Whether it is relevant for another purpose depends on whether or not proof of the tendency of a person to act in a particular way is a necessary link in the reasoning making the evidence relevant to a fact in issue.

In the present case, the evidence of the five tenants was relevant only to the fact in issue because it tended to show that Ms Kelly had a tendency to make representations to prospective tenants of the kind alleged by Mr Williams. In the absence of an assumption that Ms Kelly had such a propensity, the evidence of the five tenants could not establish a system or business practice whereby such representations were made by or on behalf of Perpetual. The tendency of their evidence to establish propensity on the part of Ms Kelly was a necessary link in the reasoning leading to the conclusion that Ms Kelly made the alleged representations during her meeting with Mr Williams.

By contrast, there will be cases where evidence of conduct is relevant to a fact in issue independently of its tendency to show that a person had a propensity to act in a particular way. If, for example, the evidence in a shopping centre misrepresentation case shows that the lessor’s agent gave instructions that particular representations should be communicated to prospective tenants, that evidence would be admissible independently of s 97(1) of the Evidence Act. The evidence, if accepted, would go beyond proving that the agent had a propensity to make representations of the kind alleged. Rather, it would establish that the agent had set in place a system which, if implemented in the particular case, would have resulted in the representation being made to the applicant. The existence of the system, in the absence of evidence to the contrary, readily supports an inference that it was implemented in the particular case. The evidence of the system makes it more likely that the fact in issue (the making of the representation to the applicant) occurred, independently of the agent’s propensity to act in a particular way.’

50                  The effect of this is that the evidence of the individual ‘franchisees’ as to what happened to them and as to what they observed cannot be used to establish that the respondents had a business system. 

51                  However, in this case it is unnecessary to use the evidence in that way.  This is because there is ‘non-tendency’ evidence which goes to establish the relevant business systems.  Both Mr Hoberg and Mr Hewitson accepted that the respondents had a business system involving the ‘franchisees’, albeit one that was in development[51].  In particular, Mr Hoberg gave evidence that he had been responsible for, and was actively involved in developing a ‘franchise business system’ during 1996-1999 for the first respondent.  This included the development of standard documentation.  The representations they made to each of the prospective franchisees were said by him to form part of the reasonably standard approach that he had developed as part of that system[52]. 

52                  Of course, I can use the evidence of the individuals who dealt separately with the first respondent in order to ascertain whether the evidence from Mr Hoberg that there was a system is correct, and, if it was, in order to determine what the system consisted of.  This is not using the evidence as ‘tendency evidence’, but rather as evidence of the first respondent’s business systems.

53                  It is clear that the system developed considerably from the time that Mr Atkins first inquired of the first respondent about franchise systems in early 1998 until the time that Mr Carroll and Mr Werner did so in late 1999.  However, it is possible to observe and identify that development.  The system, as it developed, consisted of at least the following:

(a)                      The ‘prospective franchisee’ (not including Mr Werner) was invited to visit the premises of the first respondent at Gilles Plains[53].  All except Mr Tucker did so.  They were spoken to by the third respondent.  The nature and some of the detail of the operations of the first respondent and of the franchise system was explained. The products manufactured or distributed by the first respondent were explained.  Although Mr Hoberg claimed that what he said to each prospective franchisee was basically the same and was related to the material contained in his ‘franchise folder’, I find that there were variations between what each of them were told, depending upon the circumstances and their individual interests.  This is only to be expected.  In any event Mr Hoberg accepted that his ‘franchise folder’ was a work in progress – what was in it continued to develop throughout the period. 

(b)            There was various correspondence between the first respondent and the prospective franchisee. It is clear that Mr Hoberg continued to develop the ‘template’ letters of 4WD Systems throughout the period[54].  Unfortunately there is no obvious consistency in the use of these templates.  Some prospective franchisees seem to have received letters that reflect an earlier form of correspondence.  And, in any event, it is clear that Mr Hoberg did make some changes to the letters to reflect the individual interests and position of each franchisee.  This means that even though there was a system which is reflected in the correspondence it is again not possible to avoid the individual consideration of what was said or written to each individual prospective franchisee.

54                  However, there are some issues which can be conveniently dealt with as forming part of the franchise system, if only to assist in a better understanding of the individual representations discussed below.

55                  It is clear from all of the correspondence and the evidence that all parties described the arrangement between them as a franchise.  It is also clear that it was always contemplated that the arrangement would be formalised by formal agreements in due course.  In actual fact only two of the witnesses – Messrs Carroll and Werner - gave evidence that they ever received the formal documents[55].  As discussed below, only Mr Carroll actually signed it. 

56                  Notwithstanding the use by all parties of the term ‘franchise’ it was the respondents’ contention, at least until final written submissions, that only Mr Carroll actually received a franchise – every one else only received what was described as a licence[56].  It is understandable that the respondents might argue that the word ‘franchise’ has a specialised meaning under the relevant Code.  This issue is discussed below.  What relevance the argued distinction between a licence and a franchise might have in other contexts is not clear to me.  In any event I reject it.  The word ‘franchise’ in this context simply means the right, usually exclusive, of a retailer or distributor to sell the products of another, usually a manufacturer.  This is the sense in which the word was used in the correspondence.  It is the sense in which it was understood by the ‘franchisees’.  It is the sense in which it was understood by the respondents[57].  The actual rights conferred on each of the ‘franchisees’ is discussed below.  But, with the exception of Mr Werner, it is clear that each of the ‘franchisees’ had a franchise at least as the word is commonly understood[58].  The various parties were right to so describe the arrangement in their correspondence and discussions.  This was finally accepted at least by counsel for the respondents, in final oral submissions.  Given that the contrary was unarguable it may have been preferable if his clients had accepted it in 1999 when it may have mattered to their understanding of their obligations.

57                  It is clear that it was a term of the franchise of all franchisees other than Mr Carroll that the agreement would be replaced in due course by a written agreement which was being developed.  Clearly enough terms would need to have been implied into the initial oral agreement in relation to what would or could be contained in the subsequent written agreements.  An implied term that the written agreement would bear some similarity to the initial agreement might be an example.  It is unnecessary to explore these issues.  The only person who had entered into initial negotiations with the respondents and who was then asked to execute the formal written agreement was Mr Carroll and he did so.  No complaint is made in relation to the terms of the written agreement. 

58                  Prior to taking up the franchise all of the prospective franchisees, save for Mr Werner, were required to pay a flat fee in addition to the purchase of ‘opening stock’.  The flat fee was described in the correspondence as both a ‘franchise fee’ and an ‘establishment fee’.  Again for reasons which remain unclear to me the respondents sought to argue that the flat fee was not a franchise fee, but was an ‘establishment fee’[59].  By this the respondents apparently meant that the amount of the fee actually charged reflected some of the costs incurred by the first respondent in establishing and servicing the franchise.  It did not reflect, or at least did not fully reflect, the value of any goodwill[60].  So much might be accepted although as some of the correspondence set out later in these reasons makes plain, the distinction drawn by the respondents between services and goodwill may not have always been strictly observed.  But however the fee was calculated, this does not mean that the fee cannot properly be characterised as a fee payable as a condition of entering into the franchise[61].  Such a fee can properly be described as a ‘franchise fee’.  The parties did so. 

59                   Mr Hoberg did explain in his evidence how the franchise fee was determined[62].  He suggested that for each of the franchisees other than Mr Carroll the franchise fee solely reflected the establishment cost to the first respondent[63].  Mr Hewitson gave evidence to the same effect[64].  I cannot accept this, at least in the absolute terms in which it was stated.  To give a simple example, if consideration is only given to the expenses incurred by the respondents then the franchise fee paid by Mr Tucker in Rockhampton of $7,500 was relatively cheaper than the cost of the franchise fee paid by Mr Page in Sydney of $25,000.  One only has to look at the respective time and cost spent in travelling to Rockhampton as against Sydney for the respective opening days.  As Mr Hoberg accepted, some element of the amount charged to Mr Tucker as a franchise fee reflected the respondents’ perception of the value of the franchise and perhaps of the franchisee’s capacity to pay[65].  And in this regard Mr Hoberg accepted that the franchise fee charged in relation to a capital city franchise was higher than for a country franchise[66].

60                  On the other hand, some of the cross-examination on behalf of the applicant seems to have been directed to an argument that the franchise fee charged was somehow inappropriate or too high[67] or was an inappropriate means of making profits[68].  Again I am not sure why this argument has been pursued.  Maybe it had something to do with the complaints made by Mr Elston who (as is discussed below) seems to have been primarily concerned about the amount of the fee.  Whatever the reason it does not have any obvious relationship with the TPA.  In any event I reject it.   However the franchisee fee was calculated it is obvious that the fee in each case was not very much greater, if at all, than the costs incurred by the respondents in establishing the franchise.  This was a deliberate business strategy of the respondents – to provide a low cost entry for franchisees (who generally were operating existing small businesses) so as to establish a national franchise system[69].  At least initially the respondents intended to make their profits and growth from the increased trade in their products as a result of the expansion of the franchise system, rather than from the receipt of franchise fees.

61                  When the franchise system became established on a national basis the respondents intended to double the price charged for new franchises so as to take greater account of the value of the goodwill in the trading name.  This is reflected in some of the statements made by the respondents about the ‘normal’ or ‘standard’ franchise fee which is referred to later in these reasons.  But even then the proposed normal or standard franchise fees would seem to have been relatively modest.  Such examples as there were given in the evidence of equivalent franchise fees were very much larger than those charged or proposed by the first respondent[70].

62                  I note that a similar argument was pursued in relation to the requirement of the respondents that orders for the Lock Right promotion would only be accepted if accompanied with full payment.  The applicant pleaded that this was somehow improper.  Indeed, the pleading was that this was fraudulent.  The implication from the pleading seems to be that the moneys received were held on some sort of trust.  It was not.  There is nothing whatever in the TPA which prevents a person from requiring payment in advance before orders for goods are filled.  If there was a problem in the Lock Right promotion it related to the delay in delivery of the goods, not to the requirement for payment in advance.  I will consider the issue in that context. 

63                  Although it will be necessary to consider the representations made to each franchisee individually there is sufficient consistency in some of them to discuss them in the context of the system. 

64                  In relation to some franchisees, such as Mr Tucker, there were express and direct representations made in relation to the time for supply or the quality of goods.  However, with at least some of the franchisees there were no direct representations dealing with the time of supply.  On the other hand in relation to each of them there were representations made which favourably compared the present and future performance of the first respondent with that of its major (and larger) competitors.  Further, there were other representations made by the respondents as to the expected performance of at least some of the franchisees if they entered into a franchise. That expected performance was predicated upon the assumption that the first respondent would itself perform to the same level as those competitors[71].  In the absence of any express representation as to time of supply or quality it was necessarily implicit within the representations that were made that the first respondent would meet the usual industry standards both as to time of supply of goods and as to the quality of goods supplied.  As discussed later in these reasons, if the respondent was not intending to comply with that implication, it was incumbent upon the respondent to reveal the true state of affairs. 

65                  Representations were made to at least some of the franchisees that the respondents would ‘refer’ to the franchisee sales up to specified values.  Many of the franchisees gave evidence that they were not aware of any cases where anyone had been ‘referred’ to them.  This raises the question of what ‘referred’ means in this context.  Both Mr Hewitson and Mr Hoberg gave evidence as to their understanding of the word[72].  Clearly enough it included any situation where a potential customer contacted the first respondent and was referred to the franchisee.  It may be inferred that some of the sales in relation to the diff lock promotion would have fallen into this category because the advertising for that promotion only gave the first respondent’s telephone number.  It might also include a circumstance where a particular advertisement directed a potential customer to a specific franchisee, although there was no evidence of any such advertisements.  Accepting this meaning then it is not surprising that the franchisee was not necessarily informed that there had been a referral.  Further, it must follow that the value of sales referred to in the representation was not the value of actual sales achieved, but the value of potential sales in respect of which persons had been referred.  I do not accept that the word ‘referral’ would be understood as including any inquiry from a potential customer generated as a result of the national advertising of the brand name, as Mr Hoberg claimed[73].  Not only is this inconsistent with the usual meaning of the word, it is also inconsistent with the context of the representations, which distinguish between ‘referrals’ and ‘advertising’.  I also do not accept that the value of referrals, even if construed as the value of potential sales, was necessarily in accordance with the representation.  This will need to be discussed in more detail in relation to individual representations.  On the other hand, I have considerable difficulty in understanding how these representations as to referrals could be treated as other than puffery: see Kenny J in Sanders v Glev Franchises Pty Ltd [2002] FCA 1332 (‘Sanders’)at [270]-[272] and [347].  Indeed, although the complainants’ affidavits referred to these representations and claimed reliance upon them, I did not obtain any sense from any of their oral evidence that any of them had in fact relied upon the representation or treated it as other than puffery.  There was no evidence, for example, that anyone did a calculation of expected cash flows in reliance upon the representations.  More importantly there was no suggestion that any of the franchisees had complained to the respondents about any lack of referrals.  In contrast the franchisees did complain about the failures of the respondents in other contexts, most particularly in relation to the time of delivery and the quality of goods.  This is not meant to suggest that reliance is necessary to establish a breach of s 52 TPA. That section applies to conduct that is ‘likely to mislead’ whether or not it did mislead (contrast s 87 TPAin relation to compensation).  But the fact that there was no reliance in circumstances such as these does suggest that the words were understood as puffery and that they were not likely to mislead. 

66                  Representations were also made as to the training that the prospective franchisees would receive.  This is discussed in more detail in relation to each franchisee later in these reasons.  However, some of the arguments suggesting that these representations had been breached seemed to ignore the fact that some of the franchise arrangements lasted only a relatively short period of time.  Clearly enough a representation as to what might or should occur in the course of a long term relationship may not be wholly met when the relationship only lasts 18 months or less.

67                  At least two of the franchisees, Messrs Atkins and Elston, said that it had been represented to each of them that they would receive exclusivity in relation to the distribution of Lock Rights.  This was denied by the respondents.  The question of whether such a representation was made is considered in more detail later.  But whether or not a representation was made to that effect, it would seem that they and the other franchisees in fact enjoyed exclusive trading rights, including as to the ‘Lock Right’ diff lock.  Mr Hoberg explained the reason for this.  The price that a franchisee paid for the goods supplied by the respondents was the ‘franchisee price’ plus the cost of freight.  Similarly the price that the first respondent charged to retail or trade customers was the retail or trade price plus the cost of freight.  This was also the price charged by the franchisee, but with the difference that for goods purchased within the local area the freight cost was likely to be nil.  The practical result of the price structure put in place by the first respondent was that the total cost of goods purchased by a retail or trade customer from a franchisee was lower than the total cost when purchased from the first respondent.  The result would seem to have been that the franchisees had practical exclusivity, whatever the representations may have been.  This was reinforced by the fact that the Lock Right promotion which commenced in March 1999 was solely and exclusively through the franchisees.  In any event, on those occasions when it did come to the attention of Mr Atkins or Mr Elston that the first respondent had made a direct sale within the franchisee’s area the first respondent accounted to the relevant franchisee so as to put him in the same position as if he had made the sale[74].

68                  There was some suggestion by some of the franchisees that they were bound to purchase their four-wheel drive products from the first respondent, at least if the first respondent had that product available.  Certainly the first respondent hoped that the franchisees would purchase the first respondent’s products.  However, I am satisfied that there was no requirement that they do so[75] save only for Mr Carroll where the relevant requirement was contained in the written franchise agreement.  I note for example, that Mr Page continued to order most of his products from other suppliers.  I also note that part of the ‘package’ provided to the franchisees was access to the goods of another supplier, ECB, at a discount price[76].  Those other franchisees who gave evidence that there was such an obligation were mistaken. 

69                  Representations were made to all or most of the franchisees that they would be required to pay 2.5 per cent of the turnover of their business to meet the costs of the national advertising budget of the first respondent.  This caused particular problems for at least Mr Werner, and is discussed in more detail later in these reasons.  However, it is clear that during the period that I am considering the ‘advertising fee’ of 2.5 per cent was never sought by the first respondent from any of the franchisees (leaving aside Mr Werner) and was not paid by any of them[77].

Other representations

70                  The questions of ‘tendency evidence’ and of business systems are also relevant to the question whether the first respondent breached any of the representations that it had made or for which it was responsible.  Following Jacara it is clear that the evidence of one complainant relating (for example) to delays in delivery to him by the first respondent cannot be used to establish that there were delays in relation to other complainants.  This would be to use the evidence as ‘tendency evidence’.  In order to establish that the delays were systematic it is necessary to identify evidence that is not ‘tendency evidence’ but which establishes such a system.  In this case that is provided by the evidence of Mr Vickers, supported by the evidence of the third and fourth respondents.  Relying on that evidence I am satisfied that none of the complainants was singled out for any special treatment or mistreatment.  They were all treated the same.  That treatment may have varied from time to time, but if there were problems with delays at a point in time then all complainants dealing with the first respondent at that time suffered the same delay, or at least the same risk of delay.

71                  Mr Vickers gave evidence of the delays that occurred.  As discussed below, he also may not have had a full knowledge of some of the matters about which he gave evidence.  Nevertheless, Mr Vickers handled the complaints from the ‘franchisees’.  His evidence confirms that the ‘franchisees’ were complaining about the quality of the goods produced by the first respondent and delays in supply.  As to these:

            (a)        his evidence was that he would expect suppliers of four-wheel drive accessories to be able to provide relatively standard parts within a period of about one or two days plus delivery time from the date of the order.  ‘Standard parts’ in this context means parts such as bull-bars, roof-racks, etc. for a popular model of four-wheel drive vehicle where that model has been in the market for a reasonable period of time.  Even accessories that might be considered ‘non-standard’ were usually supplied within about 14 days plus delivery time from the date of the order[78].

            (b)       His evidence was that the first respondent often exceeded these times for ‘standard parts’.  It had ‘unreasonable and unusual delays in supply’[79].

            (c)        His evidence also was that the finish on some of the product manufactured by the first respondent and supplied to the franchisees was ‘inconsistent and of varying quality’[80].  He particularly referred to problems with flaking on powder coated metal products fabricated by the first respondent such as bull-bars and roof-racks.  There was also a problem with some products, particularly bull-bars, being poorly built in the sense that the holes for fitting were not always in the correct place[81]. 

72                  In general terms Mr Vickers’ evidence in relation to delay was confirmed by the experience of each of the franchisees.  This is discussed further below.  Indeed, the period of supply was not disputed by the first respondent.  The dispute was not as to the time for supply, but the cause of it and whether that time involved any misrepresentation[82] or caused any loss.

73                  The evidence of Mr Vickers was that the cause of the delay problems experienced by the first respondent was its problematic cash flow[83].  It is plain from the evidence of Mr Hewitson[84] and, to an extent, that of Mr Hoberg that the causes were more complex.  For example:

            (a)        the delays in providing at least some models of Lock Rights for the period from September 1998 to at least July 1999, were caused initially by the problems in supply from the pre-existing US suppliers, compounded by the delays in the commencement of the Australian manufacture of the product[85].

      (b)        The expansion of the business in the period June 1998 to early 2000 (including the work involved in preparing to manufacture the Lock Right product in the first half of 1999[86] and the increase in the number of franchises) placed significant strain upon the capacity of the business.  This included its cash flow, its credit position, its stock position and so on[87].  It also placed a considerable strain upon the third and fourth respondents[88].  The result was that the first respondent had very little stock on hand during this period[89].  All, or almost all, orders from the complainants and others had to be supplied by further ordering from external suppliers or by the manufacture of the product required[90].  This meant that ordered goods would usually take 3-4 weeks to be supplied as a matter of course – any problems with supply or manufacture could significantly extend this period[91].  As mentioned above, this time for delivery was not disputed[92].

74                  Mr Vickers’ evidence in relation to quality was also confirmed by that of the franchisees.  The respondents accepted that there might be some problems in fitting some of their products, but that these problems were more or less what could be expected in the industry[93].   The respondents did not accept that the more serious problems alleged in relation to quality were real - at least in relation to any problems that the first respondent had been made aware of.   They claimed that once they became aware of any problem it was fixed[94].  This included, at one stage, changing the contractor who did laser cutting for the first respondent for the purposes of metal fabrication[95]; on another occasion, changing the paint used for painting bull-bars and other products[96].  I accept that the respondents did attempt to correct the quality problems when they became aware of them.  However, the reality was that they were a small business carrying on a small manufacturing operation, but attempting to provide a relatively full range of products.  And the same problems that the first respondent was experiencing that explain the reasons for delay also explain why there would be difficulties in maintaining and addressing problems in quality.  It is not at all surprising that there were occasional problems with quality and sometimes more than occasional problems.  Consequently I also accept, at least in general terms, the evidence of Mr Vickers and the franchisees that there were problems with quality.

75                  This provides the general background against which the particular representations alleged by the applicant can be discussed.  I will do so first by discussing in relation to each franchisee (including Mr Werner) the representations allegedly made in the context of the grant of the franchises which require consideration.  I will then deal separately with the representations allegedly made by the respondents in relation to the change from the ‘Powertrax’ to the Australian made diff lock.

76                  I have not dealt with the ‘extra’ representations identified in the applicant’s submissions that were not pleaded.  And I have not expressly dealt with all of the representations or conduct alleged to be misleading in the pleadings.  A number of these representations were simply not made out on the evidence at all.  In relation to some there was simply no evidence that the conduct was misleading.  And some others were simply trivial.  To take just one example, the applicant has pleaded that  representations were made to Mr Carroll about the ‘competitive pricing’ of the respondent’s products at retail level and that the franchisee would achieve ‘above average margins compared to the opposition’.  There was some evidence from Mr Tucker about the comparative prices of products[97], but there was insufficient information in relation to comparisons to draw any conclusion from it.  There was absolutely no evidence about competitive pricing in Western Australia where Mr Carroll was in business.  This is merely an example of many allegations made in the pleadings and during the trial which were not made out.  In order to avoid making these reasons more prolix than they already are I have not dealt with these allegations expressly. 

Atkins Representations

77                  Mr Atkins has owned his own mechanical workshop in Beresfield, New South Wales since 1992.  He entered into a ‘franchise’ arrangement with the first respondent in July 1998.  He operated ‘4WD Systems Hunter Valley’ under that franchise.  The franchise fee was $7,500 payable on terms[98].  He discontinued dealing with the first respondent in August or September 1999[99].

78                  There was little dispute as to the representations made to Mr Atkins.  In any event, I accept his evidence that:

            (a)        Initially there was some telephone contact between Mr Atkins and Mr Hoberg where the possibility of an exclusive franchise was discussed[100].  Prior to entering into the franchise he travelled to Adelaide and met Mr Hoberg who was acting on behalf of the first respondent.  Subsequently he had telephone conversations with Mr Hoberg.  The first respondent sent a letter to Mr Atkins dated 14 July 1998, which confirmed the arrangement[101].  That letter provided:

‘Many thanks for taking the time and making the effort to come to Adelaide and see what we are doing and confirming your intention to join 4WD Systems.

I suspect that you will become a very successful 4WD Systems franchisee based on your plans, attitudes and location and we hope to support you for many, many years to come.

Since we met, I have received two more confirmations of new franchises (one to be in Sydney the other an unhappy TJM distributor of 15 years in the country), plus another 4 firm enquiries like you started with - so we are growing rapidly.

At your request to secure the Beresfield franchise and based on your intentions to open your new retail showroom in the next few months and to make payment of the establishment fee in advance, please accept this as confirmation of your rights to the franchise and right to use the name 4WD Systems - Beresfield.

The licence and rights and conditions of the use of the name is subject to the final franchise documentation and the regulations provided therein, we will provide you with a disclosure document that complies with the latest regulations in due course. The 4WD Systems name is a registered and protected name, unauthorised use of the name and associated trade marks is illegal and would be the subject of both a civil claim and a breach of the Trade Practices Act. This means your business is protected from any unauthorised use of the name within your region.

As we discussed it is best for us to wait until everything is done properly rather than doing a makeshift start in your existing premises and then redoing it in the new premises, with the loss of excitement that a new opening creates and especially to avoid the potential problems that can occur with premature start before training and procedures.

All advertising and marketing use of the name is subject to written confirmation by 4WD Systems, to ensure that the name is used correctly and that no errors or misleading statements surrounding its use are made. This is not intended to be a restriction of use, but purely a protective and problem avoidance measure.

I have included some general information, a suggested opening stocks list and invoice for the establishment fee.

Please contact me if you have any further queries.’

      (b)        In the course of these conversations and correspondence it was represented to Mr Atkins by or on behalf of the first respondent:

                        (i)      he could obtain a ‘franchise’ from the first respondent.  The ‘franchise’ would give him an exclusive right to sell the first respondent’s products, including the Lock Right[102], within the franchise area[103].  He could purchase goods from the respondent at a low ‘franchisee’ cost[104].  He would have 30 day credit facilities provided to him by the first respondent[105].

                        (ii)     The first respondent manufactured some of its own goods, including bull-bars, roof-racks and other metal fabricated products[106].  These goods were at least as good as those manufactured by the first respondent’s competitors. (The implications of this representation have already been discussed).

                        (iii)     The first respondent was the exclusive Australian distributor of the ‘Lock Right’ diff lock[107].  The first respondent understood this to be the product imported from the US in the ‘Powertrax’ box.

                        (iv)    The first respondent would provide sales and product training, would provide assistance at an Open Day to launch the new franchise, and would assist at trade shows[108].

                        (v)     He could trade under the name ‘4WD Systems – Hunter Valley’[109].

                        (vi)    The first respondent was intending to grow to be a major competitor in the 4WD accessory industry.  Its products would be sufficiently competitive that it could outsell its competitors[110].

            (c)        Mr Atkins understood that the first respondent had a plan for considerable growth.  He understood the representations in that context.  Indeed, one of the reasons for him entering into the arrangement with the first respondent was that he wanted to be part of that growth[111].  With that qualification I find that Mr Atkins entered into the franchise in reliance upon the representations that had been made to him.

      (d)       The representation as to exclusivity in relation to the first respondent’s products, including the Lock Right, was complied with.  As mentioned above, Mr Atkins did receive exclusive rights of distribution.

            (e)        Mr Atkins was provided with satisfactory assistance at trade shows.  Apart from the assistance of a sleepy Mr Vickers, he was not given assistance at an Open Day but he accepts that that was due to problems of timing for which he did not blame 4WD Systems[112].  He was given additional training at his ‘franchise’ premises for one day following a trade show[113].  Given the limited period of the franchise I am not satisfied that the first respondent breached any representations it gave in relation to training or like assistance.  

      (f)        It was implicit in the representations made by the respondents that the respondents would at least meet industry standards.  This has been discussed above.  It is specifically confirmed by Mr Atkin’s own experience in the industry which was that goods ordered from suppliers are normally delivered within 1-2 weeks from the date of order[114].  In the case of the first respondent there were various delays in providing product to the ‘franchisee’[115].  In particular, there was a significant problem in delays in the period February to May 1999, with some products taking considerably longer than one month to be supplied.  Some of those products, such as a bull-bar or a roof-rack for a Landcruiser, would seem to be reasonably ‘standard’ items.  Reasonably standard Lock Right products seem to have taken at least 3-4 weeks for delivery during much of 1999[116].  In my view the representation as to the timing of supply in accordance with the usual standards in the industry was not met.  The reasons for this have already been discussed. 

      (g)        Some of the product supplied to Mr Atkins was of poor quality.  This included bull-bars and roof-racks which were poorly finished so that they would rust and/or flake.  It also included some fuel tanks which showed signs of rust.  I am satisfied that the extent of poor quality product supplied to Atkins was greater than would be reasonable to expect in the industry.  The reasons for poor quality products have already been discussed.  However, I am not satisfied that the number of faulty products supplied by the first respondent was as high as the one quarter to one third estimated by Mr Atkins[117].

      (h)        Mr Atkins made at least one request to the first respondent to be given the franchise documentation for execution.  The documentation was never provided[118].

79                  It was not pleaded that the first respondent had failed to provide products to the quality that might be expected in the industry.  Instead there were two specific representations as to quality which the applicant alleged to have been breached.  It was  alleged that a fuel tank was supplied by 4WD Systems without ‘baffles’[119].  This was dealt with by both Mr Hewitson and Mr Hoberg in their evidence.  They denied that a fuel tank could be produced without baffles, or that the presence or otherwise of baffles could be ascertained from ordinary inspection[120].  I preferred the evidence of Messrs Hewitson and Hoberg on this topic.  It seems to me to be confirmed by some of the documentary evidence relating to and describing the fuel tanks[121].  Mr Atkins undoubtedly believed that a fuel tank had been supplied without baffles, but in my view he was mistaken.

80                  Mr Atkins also gave evidence that it had been represented to him by Mr Hoberg that some of the steel fabricated products manufactured by the first respondent were ‘zinc-dipped’.  Mr Hoberg gave evidence that he would not have so described the products because the process of ‘zinc dipping’ was unknown to him.  His evidence was that the product was zinc painted.  He said that ‘dipping’ was a process more commonly used to describe an electrolytic or chemical process than painting[122].  This suggests that Mr Atkins was mistaken in thinking that it had been represented to him that the product was ‘zinc-dipped’.  On the other hand, there is a note in some of the documents used by Mr Hoberg for teaching purposes of products being ‘zinc-dipped’[123].  I accept that the note was not prepared by Mr Hoberg.  Unsatisfactory as the evidence is I am not satisfied that Mr Atkins was told that the products would be ‘zinc-dipped’.  In any event I do not know (and no-one, including Mr Atkins explained) what the words should be taken to mean even if they were said.

81                  Finally, Mr Atkins gave evidence that the fourth respondent had changed a cheque written by Mr Atkins in favour of the first respondent so as to increase the amount payable to the first respondent.  This was strongly denied by the fourth respondent[124].  Given the seriousness of the claim and Mr Atkins limited recollection of the detail of it I am not satisfied that the event occurred at least in the manner alleged.  However, this does not mean that I found Mr Atkins to be dishonest.  The result, as with many such issues in this trial, is that the allegation was ultimately irrelevant as the applicant eventually accepted[125].  Why the allegation was included in Mr Atkin’s affidavit in the first place was not explained.

Elston Representations

82                  Mr Elston qualified as an automotive mechanic in 1973 and has operated an automotive repair business in Alice Springs for many years.  Mr Elston had been a distributor for TJM.  That company entered into an exclusive arrangement with one of Mr Elston’s competitors.  In or about June 1998, he approached the first respondent seeking an exclusive distribution arrangement of his own[126].  There was a dispute as to some aspects of the early communications between Mr Elston and the first respondent.  This is discussed below.  There is no dispute that prior to entering into the franchise arrangement Mr Elston travelled to Adelaide and met the third respondent who was acting on behalf of the first respondent.  Subsequently he had telephone conversations with the third respondent and there was some written correspondence between them.  This primarily related to the question of the amount of the franchise fee.  Mr Elston had accepted that the fee was $7,500, but subsequently argued that it should be reduced to $5,000.

83                  The franchise arrangement commenced on or about 20 July 1998[127].  It came to an end in or about November 1999[128].

84                  In the course of these various discussions and correspondence a number of representations were made to Mr Elston.  In particular, Mr Elston was sent and received a letter dated 11 August 1998, headed ‘Justification of establishment fee’.  It may be that that letter was sent after the agreement had first been reached, but in my view it nevertheless sets out what the first respondent had previously represented to Mr Elston.  That letter provided:

‘Please find enclosed a list of the benefits and related costs or values that we provide as part of our franchise program.  I apologise that I did not justify these costs more fully to you when you were here. I thought that they were generally valued appropriately by you. In future I will ensure that I run through a similar list for each and every potential franchisee so that people can get a better idea of the value.

As you can see the real tangible costs of providing and establishing a franchise are in excess of $10,000 (our cost), the value to the franchisee is of course substantially higher.

In particular I am sure that you can appreciate that our relationship cannot result in the situation that occurred with TJM where you have expended the money and effort over a long period of time and then lost the goodwill because the supplier changes their mind. I have not put any value on the franchise itself and the protection it offers - although I have made reference to the fact that you have saved 50% off the normal fee, while we are still establishing  the program - next year new franchisees will not obtain this benefit.

Since you have not yet really got started yet, we have not yet been able to provide you with much of the service that we have provided to others like helping out with bulk insurance, reorganising lower cost EFTPOS facilities and many, many other things which can save you literally $1,000’s per annum. These things do take us some time to establish and they really can save you money over time. When we set up the shop and run the training and open day we will go through all of these other things and you will be able to see that there is far greater value than that listed below.

I know based on past experiences that I alone will personally sell for you more goods with profits exceeding your establishment cost, not including any other staff or programs that we will run in the first year.

Referrals back to your area from us based on our current sales levels from Alice Springs would be greater than $50,000 pa in any case.’

Description of activity or quantifiable benefit	Hrs	Value
Exclusivity of distribution – nobody gets access to the products in any other way and this is part of the value.  Otherwise you have no business goodwill like TJM		high
Establishment fee of $7500 discounted by 50 per cent from the standard $15,000 fee as first in program to help establish the system - a saving $7500		7500
Use of proprietary trademarks and product names which have helped establish your business and given you and the customer the confidence and product access necessary
Franchise level price structure which is consistently below trade or dealer pricing levels and also lower than stockists pricing - a saving of $1000's pa based on expected purchases		1000
Referrals of business to your area (unknown sales value but around $50-100,000)		?
Trade credit facilities extended to a new business with no trading history allowing you to preserve your cash flow and commence trading.		?
Display equipment being supplied (total $2697) - stands, screens, holders etc		2700
Initial meeting and introduction (1 day)		200
Attendance for shop setup/grand opening/training - projected travel/meal/accom costs 2 people for one week (actual cost)	++	3000
Supply of marketing and display equipment for opening
Delivery of goods when we come up (based on past franchisees needs) (value)		300
Radio scripts for opening
The cost of professional training time is generally valued notionally between $300-500 per day (1 week will be provided initially)		500
Marketing materials, to provide the shop with a professional atmosphere - actual physical cost is not high but expense and time required to produce these is significant		?
Posters, stickers, localized info sheets, lists etc
ECB discounted price structure as part of a group rather than as a sole trader (37% as opposed to around 27% discount)
Creation and supply of 15 localised info sheets and other eg fax headers etc	8	350
Supply of business cards and free graphic design, artwork and plate costs	2	200
Supply of uniform shirts		250
Quite a few hours of telephone support expected over the next few months	10
Obtaining mailing list and time spent creating post code and business type queries, deduplication and creation and export of Alice Springs database, mailing labels, opening letters, prize vouchers, invitations – around 4 vouchers, + materials, cost of list (approx $450)	6	750
Legal fees for disclosure document		220
Legal fees amortised for franchise documentation per franchisee		1750
Cost of consulting fees for franchise documentation per franchisee		1000
We have a lot of new marketing and display material that is being developed and this will gradually come through and end up on your floor or be used by you at events		?

As I hope you can see, there is much value in obtaining the rights to a system as opposed to being merely a stockist with no rights of exclusivity, much of the value is hidden, but it is real value and there are real costs associated with providing it to you.  In future I intend to ensure that prospective franchisees are more fully conversant with some of these issues so that some value is placed on the seemingly invisible benefits.

As I have done with all the guys, the fee is payable over three months to help out, in most cases the cash flow generated has been able to fund the program.

Please contact me if you have any queries or require further explanation of any of the points and keep up the good work and constructive critique - it is all essential part of feedback and improvement and it is extremely important that we continue to keep communication channels open’

85                  I find that Mr Elston entered into the franchise in reliance upon the representations made for or on behalf of the first respondent.  However, in determining what representations he relied upon, consideration must be given to Mr Elston’s clear evidence that he understood that some of the statements made by Mr Hoberg reflected his optimism or his dream, rather than any then present reality.  As Mr Elston put it[129]:

‘He told me he would run TJM and ARB out of business, he would be selling way more products and far better pricing and all those things. I thought, well, it’s a man with a dream and good on him. I mean, that doesn’t bother me what he said about TJM and ARB. I was dealing with him, you know? I dream I will be the biggest four-wheel drive sales place in the whole of the Northern Territory but I don’t think that will ever happen.’

This approach by Mr Elston to what he was told by Mr Hoberg was a sensible commercial judgment by Mr Elston and a realistic assessment of the character and ‘nature’ of Mr Hoberg.

86                  It was represented to Mr Elston that he could obtain a ‘franchise’ from the first respondent.  The ‘franchise’ would give him an exclusive right to sell the first respondent’s products within the franchise area[130].  Mr Elston gave evidence that he understood that this included the Lock Right[131].  Mr Hoberg gave evidence that it did not[132].  In particular, he gave evidence that a different procedure applied in relation to Mr Elston than applied to most of the other franchisees in that he was sent a letter dated 8 July 1998, by facsimile before he came to Adelaide[133].  The letter was produced in evidence.  The letter was in similar terms to that sent which had been sent to Mr Atkins on 14 July 1998 (after he had visited Adelaide) except that it contained the paragraph:

‘As a franchisee you automatically will displace any existing local stockists who would then purchase from you, with the exception of Lock Right where we are bound to continue supporting existing resellers.’

87                  A similar paragraph is contained in at least some of the correspondence with other prospective franchisees such as in the follow up letter sent Mr Tucker in February 1999.  Mr Elston denied that he ever received that letter.  The issue of exclusivity was of particular importance to Mr Elston.  His understanding at the time he entered into the ‘franchise arrangement’ and thereafter was that he had the exclusive right to sell the Lock Right in his area[134].  In these circumstances I find that that letter was not received by Mr Elston.  I accept that a copy of the letter was in the first respondent’s files.  I also accept that Mr Hoberg, relying upon the presence of the letter in those files, assumed at the time he prepared his affidavit and at the time he gave evidence that it had been sent.  But this does not establish that the letter was sent or that it was received.  I am also satisfied that Mr Elston was not otherwise informed that he would not and did not have the exclusive right to sell the Lock Right in the Alice Springs area.

88                  For the reasons already given, however, I also find that the representation was not breached.  Mr Elston did in fact enjoy the exclusive right to distribute the Lock Right in his franchise area.  Admittedly there was one occasion when the first respondent sold goods to a person who was within Mr Elston’s franchise area[135].  It appears that this was the result of a misunderstanding.  In any event it was corrected and the sale was credited to Mr Elston.  I find that, save for mistake or inadvertence, Mr Elston effectively had the exclusive right to sell and distribute the first respondent’s products in his franchise area[136]. 

89                  Mr Elston was informed that the fee payable for his franchise was $7,500.  Mr Elston attempted to have this fee reduced.  Indeed, it was apparent from his evidence that the size and purpose of this fee was the primary matter of concern in relation to the franchise.  He has still not paid the final instalment of $2,500[137]. 

90                  Mr Elston also gave affidavit evidence that he was informed that the minimum franchisee fee was normally $10,000; franchisees in Melbourne and Sydney were paying above $20,000 to purchase a franchise; and a franchise fee of $7,500 was cheaper than any other franchise sold by the first respondent[138].  His oral evidence was much less clear[139].  I do not accept that Mr Elston’s memory of this issue is accurate.  It is not consistent with Mr Elston’s own evidence or with the letter set out above that the ‘normal’ fee was $15,000.  In any event for the reasons given above it is my view that this evidence was largely irrelevant to any issue before me.  It was clear to Mr Elston that the cost of his franchise was $7,500.  He did not want to pay that much.  In fact he breached his contract and only paid the amount he wished to pay.

91                  Mr Elston was informed by Mr Hoberg that the first respondent’s products and prices were better than its competitors[140].  No evidence was given to me that would suggest that the representation concerning price was untrue.  On the other hand it is clear that some of the product supplied to Mr Elston was of poor quality.  For example, products that were supposed to be powder coated sometimes arrived with the coating bubbling and peeling; powder coated products that he fitted were often brought back by customers because they were faulty; some of the roof-racks were rusting and their powder coating was blistering and peeling; and bull-bars, roof-racks and springs did not fit the vehicles they were allegedly manufactured for[141].  Mr Elston had experience in dealing with the first respondent’s competitors both before and after the period of the franchise.  His evidence was clear that he did not have the same quality problems when dealing with those competitors[142].  These quality problems reflected the production problems that the first respondent was having which are referred to above.  I am satisfied that the representation concerning quality was breached. 

92                  Representations were made with respect to training and assistance on the opening day.  Mr Elston was given some training and was provided with support at his opening day[143].  Although in his affidavit Mr Elston complained about the amount of training given to him, it was clear from his oral evidence that he did not think that he needed training[144].  His real complaint was the size of the ‘franchise fee’ of $7,500 not the amount of training he was given.  Given the limited period of the franchise I am not satisfied that there was any breach of the representations concerning training, advertising or like topics.

93                  Mr Elston denied that he ever got any ‘referrals’[145].  For the reasons given above, it is my view that the word ‘referrals’ means potential customers directed by the first respondent to the franchisee.  On that basis the fact that Mr Elston says he did not get any referrals does not mean that there were none.  Certainly the suggestion that the amount of referrals would be around $50,000-100,000 seems exaggerated, but as this does not refer to actual sales but to potential sales and as no-one kept any records of these things I am not satisfied as to the extent of any breach.  In any event I do not think this representation was relied upon.  Mr Elston treated it as puffery.  He was correct to do so.

94                  The representation made by the first respondent that the sales made on behalf of Mr Elston by Mr Hoberg would exceed the amount of the franchise fee may also be exaggerated.  But again in the absence of any evidence showing that the amount of sales effected by Mr Hoberg at the opening day was less than $7,500[146] I am not satisfied that the representation was breached.  In any event I think it was mere puffery and was treated as such.

95                  Mr Elston gave evidence that he received a direct representation as to the time of delivery of goods ordered from the first respondent[147]:

‘I put it to you that at that meeting Raleigh never told you that there would be a maximum delivery time of 14 days? --- Yes, he did.

What did he say to you? --- He said - I said to him - I mean that’s the most important thing; he is the supplier. I said to him, “What sort of delays – you know - in your products? How quickly can you get the products out?” And he said, “Well, the longest time is 14 days, which is generally the same as everybody else.” Which is way better for us because then it’s only a day or two days after the time to get it to our place, whereas it’s seven days from TJM.  So that was a better source.

Weren’t you aware that in the industry - in the market - some products took longer than 14 days to supply? --- No, only if they are an oddball thing. If it was an everyday Nissan, Toyota - you know, stuff of that nature it was supplied within a 14-day period, unless - you know - for the weirder circumstances that it couldn’t be. If it was a brand-new vehicle then you may look at two to three months - if it was brand-new.’

Mr Hoberg denied that he made that statement[148].  I am satisfied that he did.  But even if I am wrong in that, as discussed above, there was nevertheless an obligation to inform Mr Elston that the time of forwarding of ordered goods would not be within usual industry standards.  Mr Elston’s experience was that goods ordered from other 4WD suppliers were normally delivered within one week from the date of order, or up to four weeks for ‘really weird product’[149].  In the case of the first respondent there were various delays in providing product to the franchisee[150].  For the reasons given above I am satisfied that the first respondent breached the representation as to time of supply.

Page Representations

96                  Mr Page commenced in full time business selling Suzuki motor vehicle parts and accessories in 1993 or 1994.  He later expanded his business to deal with four-wheel drive accessories.  From about 1995 he commenced selling the ‘Powertrax’ product and some other products supplied by the first respondent[151].  He came to know both the third and fourth respondents.  Obviously at that time there was no obligation or even obvious advantage in dealing with the first respondent other than its competitors.  Nevertheless, he continued to deal with the first respondent notwithstanding his evidence that even at this time he had problems with fitting bullbars provided by the franchisee[152] and with ‘Powertrax’ Lock Rights provided by the first respondent[153].  He also experienced problems with delay[154].

97                  During a four-wheel drive accessories trade show in Sydney in 1998 the third and fourth respondents raised with him the question whether he would enter a franchise arrangement with them.  There were a number of subsequent telephone discussions between Mr Page and the third respondent, resulting in Mr Page attending in Adelaide in September 1998.  Following that trip Mr Page agreed in September 1998 to enter into a franchise arrangement and in October 1998 paid a $25,000 franchise fee[155].  The arrangement was discontinued sometime between October 1999 and early 2000[156].

98                  According to Mr Page there was no written correspondence between the parties prior to entering into the franchise arrangement[157].  Mr Hoberg gave evidence that a letter was sent to Mr Page dated 25 September 1998[158].  Mr Page denies that he ever received it[159].  As it happens nothing very much turns on this.  In the course of the various discussions and negotiations the first respondent made the following representations to Mr Page:

(a)        It is clear that Mr Page was informed that he could purchase all products at the franchise price (being the lowest price at which the first respondent sold product) and that he was the only person who could do so within his franchise area.  It is also clear that he was informed that he would not have the exclusive right to distribute the Lock Right product[160].  In his affidavit Mr Page said that he was told that he would have the exclusive right to distribute other 4WD Systems products in the franchise area and this was not disputed by the respondents.   Nevertheless, in his oral evidence Mr Page said that the issue of exclusivity was a ‘grey area’[161];

(b)       The first respondent was involved in formal discussions with a company called ATECO who were looking for a bull-bar manufacturer in Australia in order to sell packages to government bodies[162].  If those discussions were successfully completed and if Page bought a franchise from the first respondent he would be the Sydney distributor for the ATECO package;

(c)        Mr Page would receive assistance from the first respondent with an opening day, with trade shows and would receive some training support;

(d)       The delays that had already occurred in the supply of product and the problems with quality were continuously being rectified[163];

(e)        The first respondent would do national advertising on behalf of the business.  Mr Page would pay 2.5 per cent of his turnover to meet the cost of this national advertising[164].

(f)        The name of the franchise business would be ‘4WD Systems – Auburn’[165].

(g)        Mr Page would receive formal franchise documentation after the new legislation commenced into operation[166].

99                  I am satisfied that Mr Page relied upon these representations in entering into the franchise.  However, Mr Page did not feel constrained to deal only with the first respondent.  Even once the franchise had been established, Mr Page continued to deal with other 4WD suppliers.  Only 20 per cent of his business involved products of the first respondent[167].

100               The proposed arrangement with ATECO never eventuated. Mr Page heard nothing more about this possibility after he had obtained his franchise[168].  However, given the terms of the representation, I am not prepared to find that it was breached.  It was only ever stated as a possibility.  There was no evidence before me as to the reasons why the arrangement did not proceed.

101               Reference has already been made to the problems in delay and quality that Mr Page had experienced with products distributed by 4WD Systems before entering into the franchise.  Those problems continued after entering into the franchise, although with a new broader range of products that Mr Page was now handling[169].  Mr Page referred to the necessity to make modifications to 50-60 per cent of some parts supplied by the first respondent, compared with 5-10 per cent from other suppliers.  After the commencement of the franchise, the period for supply was customarily 2-4 weeks, although often considerably longer[170].  Given the previous history that Mr Page had in dealing with the first respondent, involving as it did experiences with poor quality and delay, I would not be prepared to make the same implications in relation to him as I have been prepared to do with others.  However, Mr Page did raise these issues expressly with Mr Hoberg and was informed that the problems were ‘being rectified’.  They were not rectified.  The representation that Mr Hoberg made on behalf of the first respondent that the problems were being rectified was breached.  However, this was not pleaded by the applicant as a misrepresentation or as misleading conduct and I make no further comment in relation to it.

102               Mr Page received assistance and training relating to his opening day and generally in relation to trade shows.  He was satisfied with what he received[171]. 

103               Mr Page was never provided with the formal franchise documentation[172].  Part of the reason for that was presumably that the documents were still being drafted.  The representation would need to be understood as requiring, at the very least that the documents be provided within a reasonable period after the commencement of the new statutory regime.  In fact the documents would seem to have been available at least from October 1999 when they were provided to Mr Carroll[173].  They were still not provided to Mr Page, although admittedly the franchise came to an end soon thereafter.  I find that the representation was breached.

Tucker Representations

104               Mr Tucker commenced trading in 4WD accessories in late 1996.  He first dealt with the first respondent and ordered stock from it in early 1997.  Mr Hoberg (and, to a lesser extent, Mr Hewitson) soon became what was effectively a mentor to Mr Tucker.  Mr Hoberg provided considerable assistance and advice to Mr Tucker about his business.  Mr Tucker accepted that he obtained considerable assistance from Mr Hoberg at this time[174].  I accept that it was primarily altruistic on Mr Hoberg’s behalf[175]. 

105               Mr Tucker had many telephone conversations with Mr Hoberg.  In some of these there were some discussions about the possibility of entering into a franchise arrangement.  There was also some correspondence where the issue was raised[176].  Mr Tucker did not pursue the option of a franchise at that time because his business was too small.

106               During this period before entering into a franchise arrangement Mr Tucker experienced some delays in supply of stock from the first respondent.  The time for delivery was usually about 10 days for products supplied by the first respondent which were not manufactured by it, and between two and six weeks for larger items manufactured by the first respondent such as fuel tanks, bull-bars, roof-racks and spare wheel carriers[177].  In contrast products supplied by other 4WD suppliers usually took about a week[178].  There were also some minor problems with quality[179].  Mr Tucker nevertheless continued to deal with the first respondent.  He did so because of the perceived marketing advantage he obtained by creating a point of difference between him and his retail competitors in the Rockhampton market place[180].  Those competitors did not deal in the respondents’ products.

107               In late 1998 Mr Hoberg informed Mr Tucker that some of his competitors in Rockhampton were inquiring about taking up a franchise and that if they did so the first respondent would deal exclusively with them[181].  This caused Mr Tucker to attempt to raise finance for the purpose of paying a franchise fee and purchasing opening stock.  The relevant franchise fee was $7,500 and the stock required was $15,000[182].  Mr Hoberg assisted in this by preparing a financial plan which was provided to Mr Tucker’s bank, although the bank did not rely upon it[183].

108               There was some debate before me about what date the arrangement was entered into.  The respondent says that a franchise contract was made and finalised in September 1998 although the contract was conditional upon Mr Tucker obtaining finance.  There is some evidence that would support that position[184].  However, I am satisfied that the contract was only made when Mr Tucker had obtained the finance that he needed i.e. in February 1999[185].  Until that time there was no final contract – either side could have terminated the negotiations.  In reaching this conclusion I place considerable importance on the fact that the letter from the first respondent setting out the terms of the arrangement was only sent in February 1999.  If a ‘subject to finance’ contract had been finalised in the previous September then I would have expected that the letter would have been sent then.  The terms of the arrangement are basically set out in that letter dated 19 February 1999 and sent by facsimile[186].  That letter is much more detailed than what had been provided to previous franchisees.  This probably reflects the development of the franchise system – it may also reflect the fact that Mr Tucker was unable to come to Adelaide and receive the explanation of the system that others received.  The letter provides:

‘Here is a quick note to cover some of our discussions a brief precis of our franchise offering plus an initial suggested stock list which totals around $15,000 as requested.

I know you already have some stocks there and you may choose to have other part numbers, but this list is areally good cross section of products, models and basic inventory that has been used by nearly all of the franchisees.

As you know we produce product info sheets on all core products for each individual franchise, that is with your name and address. At last count there is approximately 20 of these.

With your experience with us to date you would already know that many of our products are exclusive or have quite unique features that are simply not available from any other supplier, (Compressors, Diff Locks, Isolator, Warn 9000i winch bars, Roof-racks, Recovery kits, Spare wheel carriers, Tanks etc) the rest of the product range is more generic, but with our own flavour.

4WD Systems has developed a near complete range of products over the last 10 years which represent approximately 80-90% + of the average 4WD shops product range sales. What we do not have now is progressively being introduced into the range. There are lots of new things happening now with many new products and ranges! 1999 will be an exciting year for us.

In particular it is our intention to release a range of alloy products, but in the mean time we have sources for these products which you buy direct from the manufacturer at 4WD Systems discount levels.

As a franchisee you automatically will displace any existing local stockists who would then purchase from you, with the exception of Lock Right where we are bound to continue supporting existing resellers.

Our over riding philosophy is to provide a low cost entry point into the 4WD accessory market place, to provide a higher level of training than any other group offers and a program that offers higher profits with competitive pricing on an exclusive range of high quality products. All of our existing stores are growing and exceeding initial expectations on turnover and ability to displace the opposition.

The Franchise system carries many benefits not available to resellers such as trade under licence with the 4WD Systems banner (eg 4WD Systems - Rockhampton) and use of all the trade marks, logos and all the various marketing info sheets, posters and aids that we supply. In particular we have a training, marketing and management program that includes materials and systems to cover all aspects of running your business successfully including forms, procedures, guidelines, checklists, standards, technical support to name a few. We supply a full range of display equipment to set up shop overnight in a very adaptable format that allows for shows and field day displays and in store variation. Our distribution philosophy will allow you to resell at  trade levels thereby giving you the opportunity to maximise sales via motor vehicle dealers and other trade resellers, this sort of market advantage is often not available via other brands and suppliers. We have developed highly detailed model listings that provide large amounts of supplementary information so you can become an “expert” when talking to customers (diff locks, suspension kits, tanks etc).

We have developed a complete range of dealer books which list all accessories for Ford, Toyota, Nissan etc etc at trade levels, these will be made available to you and when we assist with your opening, Andrew and I will also call on all the dealers in the area and distribute possibly 100’s of these books for you.

Our establishment fee is levied to cover costs only of setting up your shop, it includes display gear, sample products, mailing lists, raffle tickets, printing of customised info sheets, travel to your site for the grand opening and showroom setup and initial training. In the future we do intend to charge a substantially higher fee, but until 1999 we are still offering the establishment at cost as we build up our numbers. Our philosophy is that as the manufacturer and distributor we will ultimately make our profits from your purchases and not from other fees and charges. There is an advertising levy of  2.5% on sales to cover general advertising, magazine ads, posters, display materials, promotional materials and national events and other groupwide promotional efforts.

In this regard we have just finished our full colour National Newsletter and many of the Local franchisee pages, plus we have just released our new look and image advertising program to 5 magazines. There will be 2 ads in 4x4, 2 in Overlander, 3 full pages in Just 4x4s, 2 in 4WD Offroad Australia and 2 in 4WD Accessories guide. We haven’t yet booked Bushdriver magazine. These booking levels will remain for months and years. As you can see we are going to be spending many 10’s of thousands of dollars per month for a while.

Our web site is nearly finished and we expect it to be operational in the next few weeks. 

This is really only a precis of what we do and it is a pity that you have never been able to come to South Australia, however we will cover everything in minute detail when we get there for your opening and training.

I look forward to assisting you in near future, and can assure that we will be doing everything we can to ensure that your new business venture is successful.’

109               Annexed to that letter were a number of separate documents.  One was the ‘Precis of Franchise Details’.  It provided in part:

‘4WD Systems offers the following as part of its program:

One of the best quality ranges of 4WD Accessories on the marketplace - with guaranteed ongoing development

Competitive retail pricing

Ability to buy at prices that allow for profitable resale at trade and dealer levels rather than only retail

Exclusivity of distribution within your own region’

110               Another document annexed to the letter described the ‘General features of the 4WD System Product Range’.  That document provided in part:

‘A WD Systems doesn’t just offer a range of accessories to compete with the others, it actually offers a range of better made, better featured products than the opposition with competitive pricing guaranteed to increase sales and profitability.’

111               Another document contained the franchise fee justification.  It repeated the table contained in the letter to Mr Elston set out above, but with some further additions.  Another document headed ‘Fee Structure’ contained a description of the fees charged by the first respondent.  Another document provided details of the requirements for the opening day.

112               Mr Hoberg and Mr Vickers provided assistance at the opening day held in April 1999 and for this purpose drove from Adelaide to Rockhampton[187].  Mr Tucker was not entirely satisfied with Mr Hoberg’s assistance at the opening day – for example, some of prices charged by him for the product he sold did not take account of the freight cost[188].  It would appear that he was content with at least some of the training he was given at that time[189].  No other training was provided during the period of the franchise[190].  However, given the extent of the assistance provided by Mr Hoberg to Mr Tucker, including a significant number of telephone calls in most weeks, I am satisfied that the first respondent met the representations it made to Mr Tucker in relation to training and in relation to assistance at the opening day.

113               Specific and express representations were made to Mr Tucker as to the quality of the products he would receive after he entered into the franchise.  It was represented to him that the products were ‘high quality’ and ‘best quality’ and that they were ‘better made and better featured’ than those of the first respondent’s competitors.  Notwithstanding those representations the problems with the quality of the products supplied continued after the franchise was entered into[191].  He gave evidence, for example, that the requirement for him to modify parts supplied by the first respondent in order to make those parts fit continued after the franchise commenced.  I find that the representations in relation to the quality of products were breached.

114               Of more concern to Mr Tucker, the delays in supply continued.  It would appear that the supply problems were pretty much the same throughout the period that he dealt with the respondents[192].  He gave evidence that the delays affected some 50 per cent of his supplies.  This may be something of an exaggeration, but he provided a detailed list of his orders and the date of supply[193].  Again this reveals that orders took 3-4 weeks with some items taking a great deal longer.  The question is, was there any representation by the respondents in relation to the time of supply?  Two statements by Mr Hoberg are alleged that the time for supply was ‘better than our competition’ and that it would improve if he took out a franchise and carried stock[194].  The latter statement was apparently made some 12 months before Mr Tucker entered into a franchise.  How supply times would improve through taking out a franchise, or why it should improve if it were already better than its competition (which Mr Tucker was also dealing with at that time) was not explained.  Mr Hoberg denies that he ever made either of the alleged statements[195].  What is clear is that Mr Hoberg told Mr Tucker during the year before he entered into the franchise that the way to handle the delays he was experiencing was to have more stock on hand[196].  Mr Tucker gave evidence, and I accept, that this was not a feasible option for him because of his shortage of capital.  However, I am not satisfied that any representation was made to Mr Tucker about supply times, other than that he was told that he should have extra stock on hand so that his customers would not be prejudiced by the delays.  Nor do I think that any representation can be implied given that Mr Tucker had previous experience dealing with the first respondent when he did experience similar delays.  And I do not think that the respondents were under any obligation to inform Mr Tucker of the time for delivery, given his previous history in dealing with them.

115               It was represented on behalf of the first respondent that Mr Tucker would receive up to $50,000-60,000 of referrals per annum.  I find that ‘referrals’ are where a potential customer contacts 4WD Systems and is ‘referred’ to the franchisee.  The sum involved is an amount of potential sales – the question whether there are actual sales was always for the franchisee.  Mr Tucker says that he never received any referrals after the commencement of his franchise[197].  I accept that he was not aware of any referrals, but that does not mean they did not occur.  The extent of any referrals was not established. $50,000-60,000 per annum is likely to be an exaggeration. However, I am not satisfied that Mr Tucker relied upon it or that anyone else was likely to do so.

116               It was represented to Mr Tucker that he would be sent the franchise documents.  This is accepted by the respondents who say that all of the franchisees were informed that the franchise agreement was subject to the production of legal documentation that met the statutory requirements[198].  Mr Tucker gave evidence that he requested the franchise documents throughout the term of the franchise.  They were never sent[199] presumably because the franchise finished at about the time that the documents were finalised.  The representation must be read down by inserting a qualification as to compliance with the legal requirements of the Franchise Code or (given that that may have been breached in any event: see later) in relation to compliance within a reasonable time.  Even with that qualification the representation was breached. 

117               Mr Tucker discontinued the franchise arrangement in October 1999 – the franchise was in existence for only about eight months[200].  The termination of the arrangement was not a happy one – perhaps because Mr Tucker had employed Mr Vickers immediately before the franchise was terminated[201].

Carroll Representations

118               Mr Carroll entered into a written franchise arrangement with the second respondent to operate a 4WD Systems franchise in Perth.  The franchise area was the Perth metropolitan area south of the Swan River[202].

119               Prior to entering into that franchise arrangement Mr Carroll had no experience with 4WD accessories, although he had been employed in the production of motor vehicle spare parts some years previously.  He was looking to establish a business with his son.  For this purpose Mr Carroll intended to use some superannuation moneys that would become available to him in 2000[203].  His son did have some experience with four-wheel drive vehicles.  In May 1999 he contacted Mr Hoberg to inquire about a franchise.  On 8 June 1999, the first respondent sent a latter to Mr Carroll setting out some of the details of the franchise system operated by the respondents[204].  It is unnecessary to set out that letter.  It is broadly to the same effect as the letter to Mr Tucker of 19 February 1999 set out above. 

120               After some further telephone conversations Mr Carroll travelled to Adelaide in September 1999 and met with the third and fourth respondents.  He was given various assurances about the quality of the products sold by the first respondent. He was told that the products were of high quality with excellent performance[205].  There was discussion about what funds would be required to establish a franchise.  After Mr Carroll returned to Perth there were further telephone conversations.  In the result it was agreed that Mr Carroll would take a franchise and would pay a franchise fee of $20,000[206]. 

121               On 6 October 1999, Mr Hoberg sent a letter to Mr Carroll by facsimile[207].  That letter confirmed that Mr Carroll had a licence to use the ‘4WD Systems’ name.  As mentioned above the relevant licence was granted by the second respondent – not the first.  The letter enclosed a ‘Deposit Agreement’ which Mr Carroll executed[208].  The Deposit Agreement (in contrast with the letter) suggested that the licence was conditional upon the payment of the franchise fee.  The Deposit Agreement expressly provided that if Mr Carroll ‘determines not to proceed prior to the execution of the franchise Agreement then the franchisor will refund to him the said deposit less the costs.’  Both the letter and the Deposit Agreement expressly stated that Mr Hoberg would bring a franchise agreement with him for execution when he attended at the Opening Day in November.   Mr Carroll paid the deposit of $20,000 on 7 October 1999[209]. 

122               The business opened in November 1999.  Mr Hoberg travelled to Perth and assisted at the Opening Day[210].   He brought with him the ‘franchise documents’.  These comprised a number of documents:

            (a)        A Disclosure Document[211].  This document set out in summary form the obligations imposed by the franchise documents referred to below and warned the prospective franchisee that he or she should obtain legal advice. 

            (b)       A Franchise Document[212].  This set out the general terms of the franchise.  For present purposes a number of clauses can be noted:

                        (i)      Clause 4: 

‘WARRANT OF SALES REFERRALS TO FRANCHISEE

4WD Systems Australia covenants with the Franchisee that it will use its utmost endeavours to provide such sales referrals for the Franchisee as shall be available from time to time.

4.1.      Exclusions from Warrant

                       The Franchisee hereby acknowledges that 4WD Systems Australia does not warrant that a specified amount of sales will be provided to the Franchisee at any time.’

                        (ii)     Clause 11.1:

‘the Products and Services will conform to the specifications set forth in documentation associated with the Products and Services. The Franchisee shall return any defective Products within twenty eight (28) days of delivery to the Franchisee attaching a notice of its claim of any manner in which the product does not conform to specifications. If any of the products is found by 4WD Systems Australia not to conform to such specifications 4WD Systems Australia’s sole obligation under this warranty is to request the manufacturer to remedy such non-conformance or alternatively credit the account of the Franchisee with 4WD Systems Australia for the lesser of the then current price of the Products or the price paid by the Franchisee (taking into account any discounts or other credits claimed) less 4WD Systems Australia’s current restocking charge.’

            (c)        The Regulations for Franchisees[213].  The Regulations form part of the franchise agreement.  Clause 5 of the Regulations deals with the undertakings upon the second respondent.  Relevant clauses of that agreement include:

‘5.1     Referral of Sales Enquiries

to use its best endeavours to provide such sales referrals to the Franchisee as shall be available from time to time.

5.15     Fulfil Orders for Products

to exercise its best endeavours to provide the Franchisee with such of the Products as are necessary to enable the Franchisee to process orders for the Products pursuant to this agreement.

5.17     Shows and Promotions Support

Subject to availability to provide at 4WD Systems Australia’s cost an employee for the purpose of assisting the Franchisee to promote the Products and the Services at shows and other promotional events within the Territory’ 

            (d)        Other schedules to the franchise agreement[214].

123               Mr Carroll executed the Disclosure Document and the franchise agreements on 23 November 1999[215]. 

124               It is true that the Deposit Agreement expressly informed Mr Carroll that he could get all or most of his deposit returned if he decided not to execute the agreement.  But the reality is that the franchise agreement was only produced at, or immediately after the opening days on 19-21 November 1999.  As Mr Carroll said in his evidence by the time he executed the franchise agreement he was committed in any event[216]. 

125               The problem is to identify what representations were made to him and what representations he relied upon in the context in which he found himself.  In particular, Mr Carroll knew, at relevant times, that the formal documents comprising the agreement would be produced by Mr Hoberg when he attended on the opening day.

126               The fact of the matter is that the formal franchise documents have obviously been legally drafted.  They might be described as cautiously drafted, certainly in comparison with some of the correspondence that Mr Hoberg drafted.  The franchise documents do not contain the hyperbole and exaggeration confirmed in many of the letters that were written by Mr Hoberg, and which are set out above. 

127               Given the express terms of the executed agreements it is significantly more difficult to imply that representations were necessary or were made where such implications are contrary to the express terms of the agreements.

128               Whilst Mr Hoberg was in Perth he provided some training to Mr Hoberg and his son[217].  Mr Carroll was happy with the training provided on that occasion[218].   Otherwise Mr Carroll was not satisfied with the training provided by the respondents[219].  However, given the terms of the agreement I am not satisfied that the training provided was in breach of any representations made by any of the respondents.

129               As mentioned above Mr Hoberg did make representations to Mr Carroll as to the quality of the products made by the first respondent.  However, there was no evidence that the goods supplied did not comply with the representations[220]. 

130               Clearly enough there were delays in the supply of product from the second and/or first respondent to Mr Carroll[221].  Indeed, notwithstanding that Mr Carroll was obliged under the terms of the franchise agreement to purchase all of his supplies from the second respondent he in fact purchased from other suppliers as a result of the delays from the respondents[222].  As a result he was in a position to compare their respective performances.  His evidence was that the supply times from the respondents were considerably longer than the supply times from other 4WD suppliers[223].  This was Mr Carroll’s main complaint[224].  However, there is no evidence before me of any express representation made to Mr Carroll in relation to supply times. 

131               Nothing is specified in the franchise agreements or the surrounding documentation as to time of supply.  Clause 5.15 of the Regulations refers to the second respondent using its ‘best endeavours’ to provide the franchisee with such products as are necessary to enable the franchisee to process orders.  Clearly enough this is not an obligation to supply goods within 14 days (as adjusted to make allowance for delivery to Perth). 

132               However, this is not an end to the matter.  The second respondent, through Mr Hoberg, knew that Mr Carroll was committed to enter the franchise before he executed the agreements.  For the reasons already discussed, the second respondent knew, through Mr Hoberg, that delivery times would not meet ordinary industry standards or anything like it.  In particular it knew that the business of the first respondent as the supplier of the goods was a business where the goods were manufactured when ordered rather than being in stock.  In these circumstances there was an obligation upon the second respondent to inform Mr Carroll what he might expect that ‘best endeavours’ would mean.  He was entitled to know what the context of the deal was.  He did not. 

133               Mr Carroll gave evidence that he was not aware of any referrals from the respondents other than some towards the latter part of the franchise[225].  However, given the terms of the franchise agreement I am not satisfied that any representations were made as to the number or extent of referrals.  Given the meaning of the word ‘referral’ as discussed above, I am also not satisfied that any representation was breached. 

134               The business closed in May 2001[226].  One of the causes of that failure was the problems in supply, but there were other causes[227].  I note that the respondents dealt fairly, indeed reasonably generously, with Mr Carroll in relation to crediting returned stock during that period[228].

Werner

135               Mr Werner did not obtain a new franchise from the first or second respondents.  Rather he sought to purchase the business of an existing franchisee – Mr Randal Webster trading as 4WD Systems Taralgon.  The agreement to purchase the business was reached in December 1999[229].  The purchase price was paid on 11 February 2000 and Mr Werner commenced trading as 4WD Systems Taralgon on 14 February 2000[230].

136               Mr Werner’s affidavit evidence was that he entered into a contract for a franchise directly with the first and/or second respondent[231].  However, it is clear from the oral evidence that this is not what happened.  When Mr Werner first talked to Mr Webster about the sale of his business Mr Webster had not signed a franchise agreement with the first or second respondent, but had sought a written franchise agreement so as to effect the sale[232].  Mr Werner had a clear understanding that he could not obtain a transfer of the franchise unless Mr Webster did obtain and execute a written franchise agreement[233].  The second respondent did supply the franchise agreement to Mr Webster prior to the sale. It was signed executed by Mr Webster.  There was no evidence as the form of that agreement.  Mr Werner did not see it[234]. 

137               Mr Werner was provided with a number of documents which related to the transfer of the franchise:

·        a bundle of documents including a ‘Disclosure Document’, a credit application document and a ‘check list’ document most of which he executed in January 2000[235].  These were standard form documents.  Some of them were not entirely suitable to Mr Werner’s situation.  The check list document, which was signed by Mr Werner and his wife recorded that they had received legal advice on the transaction.  It is unclear to me whether they had done so at that time, notwithstanding that they had signed the document.  Other aspects of that document, such as that there had been an explanation of its terms by a ‘marketing representative’ of the second respondent, may also be untrue[236].  It is clear that the direct contact between any of the respondents and Mr Werner prior to the completion of the sale was very limited – indeed it may have been no more than a reasonably short telephone conversation;

·        another called a ‘Franchise Transfer Agreement’ which he executed on 8 February 2000[237]; and

·        a draft franchise agreement with the second respondent which Mr Werner did not and never has executed[238].  This was received some days before the purchase price was paid to Mr Webster for the sale of the business and before the new business opened[239]. 

138               The reason why Mr Werner did not sign the franchise agreement was because he understood that it required him to pay 2.5 per cent of all turnover from the business including (it appears) the existing business operated by Mr Werner before the purchase of Mr Webster’s business.  Mr Werner was not prepared to agree to this.  He also was not prepared to agree that the second respondent could audit his accounts for the purpose of calculating the 2.5 per cent fee[240].  He had been told by Mr Webster prior to the completion of the sale that there was a requirement to pay 2.5 per cent of turnover, but Mr Webster did not recall whether he had been told or whether he merely assumed that the percentage was only to apply to the business that he was purchasing rather than the whole of the turnover from the business[241].  The requirement to pay the 2.5 per cent fee was also referred to in the Disclosure Document which Mr Werner had signed[242] although it is at least arguable that the fee as described in that document did not extend to the whole business, but only that part which was transferred.  In any event I accept that Mr Werner only became aware of the extent of the obligation when he received the franchise documents.

139               As part of the sale Mr Werner paid $8648.08 to the second respondent.  The applicant pleaded that this was a payment to the respondents for the transfer of the franchise.  However, it would seem clear that the payment was part of the sale price between Mr Webster and Mr Werner and reflected moneys owed by Mr Webster to the second and/or first respondent.  Although not explored in the evidence, in its submissions the applicant has argued that $1,500 of the amount paid, was paid by Mr Werner to the respondents for the transfer of the franchise.  Apparently this is because the amount of $1,500 is described as being a payment for training.  However, it is clear from cl 4 of the Transfer Agreement that this amount was due from Mr Webster in relation to his franchise – it was not a separate or independent payment under any agreement between Mr Werner and the second respondent[243]. 

140               The result of all this is clear enough.  Mr Werner had entered into a contract with the first respondent contained in the franchise transfer agreement pursuant to which Mr Werner had undertaken to enter into a franchise agreement in similar terms to that executed by Mr Webster and as explained in the Disclosure Document.  He knew that he had to execute that agreement in order to have a franchise[244].  He was supplied with the franchise agreement.  There is no evidence before me to suggest that the agreement differed materially from that which Mr Webster had already signed. Mr Werner refused to sign it[245].  Consequently he never had a franchise agreement.

141               Notwithstanding that he did not enter into a franchise agreement the respondents supplied him at franchise prices and otherwise treated Mr Werner as a franchisee[246] until it became clear that Mr Werner would not sign the agreement.  That occurred in late April or early May 2000[247].  Mr Werner claimed that he was refused the supply of any product unless he signed.  Mr Hoberg said that he merely refused to supply at the franchisee price.  Given the nature of the pricing structure operated by the respondents the economic effect was probably the same.  If it matters I am not satisfied that Mr Werner is correct in his description of what ‘threat’ was made to him.

142               Notwithstanding that Mr Werner had not executed the franchise agreement he complained about the quality of goods he received and the delay in receiving them[248].  He also complained about the training that he received[249].  Nevertheless I am not satisfied that any representations were made to him, whether express or implied.  Nor am I satisfied that he relied upon any representations, other then those made by Mr Webster. 

Breach of Representations

143               To summarise, I am satisfied that the first respondent has breached the following representations which were relied upon by the relevant franchisee:

            (a)        As to Mr Atkins:  breach of representations as to time for supply, as to quality of goods and as to provision of the franchise documents.  However, the relevant representation as to quality was not one that was pleaded by the applicant.

            (b)       As to Mr Elston:  breach of representations as to time for supply and as to quality of goods.

            (c)        As to Mr Page:  breach of representations as to provision of the franchise documents.

            (d)       As to Mr Tucker:  breach of representations as to quality of goods and as to provision of the franchise documents.

I am also satisfied that the second respondent breached an implicit representation made to Mr Carroll as to time of supply, which representation was relied on by Mr Carroll.

Misleading and Deceptive Conduct

144               Did these breaches of representations constitute misleading and deceptive conduct under the TPA?

145               Section 52 of the TPA provides:

‘(1)      A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2)               Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).’

146               A corporation – in this case the first respondent and/or the second respondent – that makes representations to a person which representations are relied upon by that person and which representations are untrue at the time they are made has plainly breached s 52 of the TPA. 

147               At least one qualification to that general proposition relates to representations as to future matters.  For example, a statement by the owner of a forest that timber could be supplied from that forest at some future date may be rendered untrue if the forest is subsequently destroyed by fire.  Yet the making of the statement would not be ‘misleading or deceptive’.  Obviously enough the statement was true when it was made.  Nor, presumably, was there any reason at that time to think it would not be true at the relevant future date.

148               Each of the representations in this case was a representation as to a future matter, namely that the first respondent would, in the future, supply goods within a certain time and of a certain quality and that it would, in future, provide the franchise documentation: see Sanders at [275]-[276].  Section 51A of the TPA can provide some assistance to an applicant in proving a breach of s 52 where there are representations as to future matters.  In this case that section was not pleaded and is expressly not relied upon[250].  In the absence of that section it is necessary for the applicant to establish that the representations as to future conduct were, in the circumstances, misleading and deceptive at the time they were made.

149               The relevant principles were discussed by Toohey J when a member of this Court in James v Australia and New Zealand Banking Group Ltd Bank (1986) 64 ALR 347 at 372-373:

‘Assuming that the respondents made the statements attributed to them, some of what was said related to what would happen in the future. In Bell v Australasian Recyclers (WA) Pty Ltd [1986] ATPR 40-644 I discussed the law in relation to statements relating to what would happen in the future. I shall not repeat what is set out there but shall summarize the views expressed. I shall also state in summary form the law relating to intention or state of mind where s 52 is invoked.

(1)       A corporation may be in contravention of s 52, whatever its intention or the state of mind of those controlling it: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1977) 140 CLR 216; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1981) 149 CLR 191; 42 ALR 1.

(2)       The mere fact that representations as to future conduct or events do not come to pass does not make them misleading or deceptive: Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242.

(3)       Nevertheless, a statement relating to the future may contain an implied statement as to present or past fact. It may represent impliedly that the promisor has a present intention to make good the promise and it may represent impliedly that he has the means to do so: Thompson v Mastertouch TV Services Pty Ltd (1977) 15 ALR 487.

(4)       A statement involving the state of mind of the maker of the statement, eg promises, predictions and opinions, ordinarily conveys the meaning that the maker of the statement had a particular state of mind when the statement was made and that there was basis for that state of mind. If the meaning contained in or conveyed by the statement is false in that or in any other respect, there will have been a contravention of s 52: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 55 ALR 25; Australian Ocean Line Pty Ltd v West Australian Newspapers Ltd (1984) 58 ALR 549.’

150               The issue in each case is not whether the conduct falls within the terms of some legal test, but rather whether, considered as a whole, the relevant conduct at the time it occurred was ‘misleading or deceptive’.  For example, where there is a real possibility that the representation will not be fulfilled it may be necessary that any representation be qualified, notwithstanding that those making the representation expect that it will be fulfilled: see Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 463-467.  This is made clear by Finn J in South Sydney District Rugby League Football Club Ltd v News Ltd  (2000) 177 ALR 611 at 708 [448]:

‘Furthermore, and irrespective of s 51A, where an unqualified representation as to a future matter was made in circumstances where it should have been qualified, it can contravene s 52 for want of qualification at the time of its making: see Bowler v Hilda(1998) 80 FCR 191; at 203–6; 153 ALR 95; Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40–940; at 50,251.’

 

151               Insofar as the representations in relation to quality are concerned it is clear that there had been problems with quality over a long period of time prior to the making of any of the representations.  Some of the problems may have been caused by contractors; some may have been caused by the paint being used; some may have been caused by the relatively small scale of the manufacturing operations undertaken by the first respondent.  If the respondents had taken the sensible position of explaining what the problems were, when they occurred and how they had been corrected then it might be possible that at particular points in time there may have been some basis for saying that the respondents, at that time, could have reasonably thought that the problems were fixed.  But that was not their position.  Their position was that there was no problem at all, or at least, none that was unreasonable or unexpected.  This remained their position throughout the trial and even in final submissions.  In the result the only evidence is that even though the causes may have fluctuated, the problems with quality were reasonably continuous, at least until the year 2000.  By then the only franchisee who has given evidence and who was still handling the first respondent’s products was Mr Carroll.  He did not complain about the quality of goods.  Maybe by then the quality was satisfactory.  However, at least until then in my view it was incumbent upon the first respondent to alert prospective franchisees to the problems in quality that the first respondent was experiencing.  It did not do so.  In my view this failure meant that the conduct of the first respondent was misleading.

152               Similarly, in relation to the time of delivery the evidence is clear that the delays of which the franchisees gave evidence preceded the representations made to them.  Indeed, the respondents did not deny that those delays occurred.  Instead they denied that they were properly characterised as delays.  The position of the respondents in their final submissions was that ‘they build to order and that they have always been slow at delivering ...[t]his was the expectation that the franchisees should have had’.  With respect, most of the franchisees were only going to have this expectation if they were told of the manner and time in which the respondents filled the orders they received.  This is the point made above in relation particularly to Mr Carroll.  If, as I accept, this was the nature of the respondents’ business, then the prospective franchisees should have been told.  The failure of the respondents to make it clear to prospective franchisees that the respondents did not meet usual industry standards and that delivery times would be delayed whilst the goods were manufactured had the consequence that its conduct, viewed as a whole, was misleading:  see Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 31-32, 40-41. 

153               I think that the issue is different in relation to the failure to deliver the franchise documents.  There is almost no evidence as to why this failure occurred apart from the evidence of various franchisees that they were informed that the delay was the result of the delay by solicitors[251] and the evidence of Mr Hoberg that the terms of the Code were not available to the respondents or their solicitors until after October 1998[252].  I am not satisfied that the evidence of Mr Hoberg is strictly correct.  As mentioned above I am informed that the regulations were published soon after notification in the Gazette.  In any event, to the extent necessary, I am prepared to rely upon the presumption of regularity in relation to the publication of the Trade Practices (Industry Codes – Franchising) Regulations 1998: see Watson v Lee (1979) 144 CLR 374.  However, this does not mean that the respondents may not have experienced some difficulty in obtaining a copy of the Code even if this did not excuse non-compliance.  Even then I accept what seems to now be agreed that the Code was readily available at least by August 1998.  As such it would not explain the delay in the production of the documents.  All that is left the impression that the solicitors were tardy. 

154               The relevant representations as to the provision of the contractual documents were made to Mr Atkins and to Mr Elston in the period June-July 1998, to Mr Page in September 1998 and to Mr Tucker in the period September 1998 to February 1999.  There is no evidence at all that would suggest or infer that at that time the first respondent knew that it would not be able to provide the franchise documents in a reasonable time thereafter.  Consequently there is no evidence that the representations that the franchise documents would be provided when they were ready were false or misleading at the time they were made.

155               In consequence I find that the first respondent engaged in conduct that was misleading in breach of s 52 TPA in that: 

            (a)        as to Mr Atkins it made express representations to him as to quality of goods which were misleading at the time they were made.  However, the relevant representations as to quality were not pleaded and I make no further comment in relation to those representations. 

            (b)       Also in relation to Mr Atkins, in the context of the negotiations between the parties the failure of the first respondent to inform Mr Atkins that it did not and would not comply with the usual industry standards as to the time for supply was also misleading conduct.

            (c)        As to Mr Elston it made express representations to him as to time for supply and as to quality of goods which were misleading at the time they were made.

            (d)       As to Mr Tucker it made express representations to him as to quality of goods which were misleading at the time they were made.

I also find that the second respondent engaged in conduct that was misleading, in the context of the negotiations with Mr Carroll, by reason of the failure of the second respondent to inform Mr Carroll that it did not and would not comply with the usual industry standards as to the time for supply.

The Lock Right diff lock Representations

156               Section 53(1) of the TPA provides:

‘(1)      A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services:

            (a)     falsely represent that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use;

            (aa)   falsely represent that services are of a particular standard, quality, value or grade;

            (b)     falsely represent that goods are new;

            (bb)   falsely represent that a particular person has agreed to acquire goods or services;

            (c)     represent that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have;

            (d)     represent that the corporation has a sponsorship, approval or affiliation it does not have;

            (e)     make a false or misleading representation with respect to the price of goods or services;

            (ea)   make a false or misleading representation concerning the availability of facilities for the repair of goods or of spare parts for goods;

            (eb)   make a false or misleading representation concerning the place of origin of goods;

            (f)      make a false or misleading representation concerning the need for any goods or services; or

            (g)     make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.’

157               As discussed above, the arguments in relation to diff locks became more focussed as the trial proceeded.  In the final result there was not very much difference between the facts asserted by each party.  The relevant background in terms of the sale and packaging of the Lock Right is set out above.

158               The applicant initially pleaded that there had been a breach of s 53(1)(a) of the TPAin that there had been a misrepresentation as to the particular standard, quality, value, grade, composition, style or model of the Australian Lock Right as against the US manufactured product.  It may be that that case was made out, at least at a technical level[253].  However, it is unnecessary to consider the question.  For the reasons given below it is plain that there was a breach of s 53(1)(eb) in relation to the place of origin of the goods.  In the final oral submissions the applicant sought leave to amend its pleadings to specifically raise that issue.  The respondent claimed that it was prejudiced.  However, it was obvious to me that the applicant’s case had always been focussed on the place of origin of the goods.  The applicant opened on that basis.  In my view there was no prejudice other than the potential loss of an unmeritorious pleading point.  I granted the applicant leave to amend its pleadings.

159               In the end result two specific breaches of s 53(1) of the Act are alleged by the applicant.  The first is that the first respondent falsely represented that the Lokka Australian made diff lock was the Powertrax US made Lock Right – this being a false or misleading statement as to the place of origin of the goods in breach of s 53(1)(eb) of the Act. 

160               It is clear that there was a general understanding throughout the market place, and certainly by the franchisees, that the Powertrax product was made in the US[254].  There was also a clear understanding that the ‘Lock Right’ was the Powertrax product.  If a franchisee ordered a ‘Lock Right’ what was being ordered was a Powertrax made in the US[255].

161               Orders were placed by the franchisees with the first respondent on the understanding and expectation that the product to be supplied was the ‘Powertrax’.  The franchisees were not ‘officially’ informed that the product was not ‘Powertrax’ until they received the franchise newsletter.  The date of that is unclear, but it was probably sent out in September 1999 or later.  Given the common understanding it was incumbent on the first respondent when it commenced to sell the Australian made product to inform the franchisees and its other customers that the product had changed[256].  It did not do so.  At the very least the failure of the respondents to do so was poor business practice[257].

162               Nor can it be said that no-one was misled.  It is true that all of the franchisees said that they could identify the Australian made diff lock.  But by then they had already been supplied with the Australian made product when what they had expected to receive when they placed their order was the US made Powertrax.

163               In my view the failure of the first respondent to inform the franchisees that the product had changed before the orders were filled with the new product was a breach of s 53(1)(eb) of the TPA. 

164               In fact it continued to make representations that the product was the Powertrax.  Even after the Australian made product was on the market being sold in the new packaging advertisements appeared in a number of four-wheel drive magazines which continued to show the Powertrax box[258].  This continued until at least the end of 1999[259].  Mr Hoberg suggested in his evidence that this was the fault of the publishers of the advertisements, but this does not explain all of the advertisements[260].  The publication of these advertisements was a clear misrepresentation as Mr Hewitson acknowledged[261].  Until they were informed otherwise that representation was made to the franchisees as much as others.

165               The relevant time of the representations in the advertisements was the time that the advertisements were published or, alternatively, the time thereafter that orders were made.  It is not the time of delivery.  Notwithstanding that the products when delivered were noticeably different from those that had been ordered (and paid for) in my view the representations made in the advertisements were also in breach of s 53(1)(eb) of the TPA.

166               Further, the applicant alleged that the first respondent deliberately informed a number of the franchisees that the product was the same and that it had not changed.  This is disputed by the respondents.  Whatever the position may have been in the pleadings, the respondents now take the position that they did inform the franchisees on specific occasions that the product was the same US made product as it had previously been, but at the times that they did so the statement was true[262].  It is possible that the franchisees could have been mistaken about the significance of what they were told.  They seem to have assumed that all of the product in the new packaging was the Australian made product[263].  As discussed above, this was not correct.  For most of 1999 at least some of the product sold in the new packaging was the US made product. 

167               However, Mr Atkins was more specific.  He gave evidence that he noticed that the product in the box was noticeably different from the US product and that for this reason he sought confirmation that it was the same product.  In particular, Mr Atkins said that he noticed in July or August 1999 that the product was different and that he asked Mr Hoberg whether it was different and he was informed that it was ‘the exact same product’[264].  Mr Hoberg says that the conversation took place (at least in general terms) before the first respondent commenced distributing the Australian made Lock Right and that the statement was true[265].  Clearly Mr Atkins may have been confused as to the date, but this does not explain Mr Atkins evidence that he observed that the product was different. 

168               I note that Mr Tucker gave similar evidence in relation to the time and circumstances that he noticed that there was a different product, although when he contacted the first respondent Mr Vickers informed him that it was a different product[266].  It is clear that Mr Vickers was not authorised by the first respondent to make any such statement[267].  Indeed it would appear that at least Mr Hoberg wished to avoid informing the staff, including Mr Vickers, that the first respondent was manufacturing a replacement diff lock[268].  Mr Hewitson admitted that there was an understanding between Mr Hoberg and himself that the franchisees would not be informed that the US made product was to be replaced with the Australian made product[269].

169               It is clear to me that at the relevant time the view taken by the respondents was that the Australian made product and the US made product were the same.  Their position at the time (and, in fact, until well into the trial[270]) was that the first respondent had the Australian property rights to the Lock Right product and that consequently the product was the same no matter who manufactured it or where it was manufactured.  Indeed, the respondents reverted to this position whenever it was clear that their actions at the time were not consistent with the products being different[271].  As Mr Hewitson said in his evidence[272]:

‘[The Lock Right was] a 4WD Systems product….It was just changing the source of supply. That’s how we certainly regarded it.’

170               As is now clear, the product was not the same, even assuming that the first respondent had the property rights to it.  The products were different and distinct including as to place of manufacture.  However, given the previous view of the respondents that the product was the same, it is not at all surprising that they should have informed Mr Atkins that it was the same, even when the product he had received was the Australian made product.  I am satisfied that Mr Atkins was informed that the Australian made product was ‘exactly the same’ as the US made product.

171               Mr Atkins did not rely upon the representation made to him.  He knew the new product was different.  But reliance is not necessary to establish a breach of s 52 of the TPA.  It is enough that the representation was false.  I am satisfied that the representation to Mr Atkins was false.

172               I note that in his affidavit Mr Page says that he was informed in June or July by Mr Hoberg that the product was ‘the same product out of the same factory’[273].  Mr Hoberg says that that statement was true because the relevant product was still the US product[274].  This could be correct.  As Mr Page did not give evidence that the product was noticeably different I am not satisfied that in relation to him the statement made by Mr Hoberg was false. 

173               There was no evidence before me that an Australian made 4WD product would be considered in the market place as inherently inferior merely because it was Australian made.  What limited evidence there was was to the contrary[275].  There was some evidence that there were problems with the new product[276].  This was disputed by the respondents[277].  If there were problems it would seem to have been limited to a particular model for Suzuki four-wheel drive vehicles.  In any event I am not satisfied that the Australian made diff lock was inherently inferior in quality or performance to the US made diff lock that it replaced.  However, whether or not the Australian made product was inferior or would be considered to be inferior was not to the point.  It is sufficient that there was a misrepresentation as to the place of origin of the goods: s 53(1)(eb) TPA.  Further, in this case it is clear that the US made product had an existing reputation.  Whether or not the Australian made product was as good it was nevertheless different.  It did not have an existing reputation.  It still had to earn its reputation in the market place. 

174               For these reasons I am satisfied that the first respondent breached s 53(1)(eb) TPAin:

·        expressly representing to Mr Atkins that the Australian made product was the ‘exact same product’ as the US made product;

·        advertising in various four-wheel drive magazines from July-December 1999 that the product being supplied by the first respondent was the ‘Powertrax’ product when an increasing proportion of the product supplied over that period was made by the first respondent in Australia and not made by contractors in the US;

·        not informing the franchisees and others in or before July 1999 that as from July 1999 some of the product that the first respondent would supply in response to orders for Lock Right products would be made by the first respondent in Australia and not made by contractors in the US.

Unconscionability

175               The applicant also alleges that the conduct of the first and/or second respondent was ‘unconscionable’ and in breach of the TPA. The particulars (such as they are) of this allegation are extremely broad and generally unhelpful.  Indeed, in its final written submission the applicant submits that in order to determine this aspect of the claim it is necessary to consider ‘all of the circumstances’ and then lists some 10 pages of ‘circumstances’ that I should consider to determine whether the conduct was ‘unconscionable’. 

176               Although the applicant also relies upon s 51AA of the TPA, it primarily rests its case in relation to unconscionability on s 51AC of the TPA[278]. 

177               Section 51 AA and s 51AC TPA provide:

‘51AA

(1)       A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

(2)       This section does not apply to conduct that is prohibited by section 51AB or 51AC.

51AC

(1)       A corporation must not, in trade or commerce, in connection with:

            (a)     the supply or possible supply of goods or services to a person (other than a listed public company); or

            (b)     the acquisition or possible acquisition of goods or services from a person (other than a listed public company);

engage in conduct that is, in all the circumstances, unconscionable.

...

(3)       Without in any way limiting the matters to which the Court may have regard for the purpose of determining whether a corporation or a person (the supplier ) has contravened subsection (1) or (2) in connection with the supply or possible supply of goods or services to a person or a corporation (the business consumer ), the Court may have regard to:

(a)       the relative strengths of the bargaining positions of the supplier and the business consumer; and

(b)       whether, as a result of conduct engaged in by the supplier, the business consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and

(c)       whether the business consumer was able to understand any documents relating to the supply or possible supply of the goods or services; and

(d)       whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the business consumer or a person acting on behalf of the business consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and

(e)       the amount for which, and the circumstances under which, the business consumer could have acquired identical or equivalent goods or services from a person other than the supplier; and

(f)        the extent to which the supplier’s conduct towards the business consumer was consistent with the supplier’s conduct in similar transactions between the supplier and other like business consumers; and

(g)       the requirements of any applicable industry code; and

(h)       the requirements of any other industry code, if the business consumer acted on the reasonable belief that the supplier would comply with that code; and

            (i)      the extent to which the supplier unreasonably failed to disclose to the business consumer:

                     (i)            any intended conduct of the supplier that might affect the interests of the business consumer; and

                     (ii)           any risks to the business consumer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the business consumer); and      

(j)        the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the goods or services with the business consumer; and

(k)               the extent to which the supplier and the business consumer acted in good faith.’

178               It is plain from the terms of the two sections that s 51AA does not apply if s 51AC is applicable.  The correct place to start the analysis at least in this case is with the applicability of s 51AC. 

179               Section 51AC TPA refers to conduct that is ‘unconscionable’.  Section 51AA, on the other hand, uses the expression ‘conduct that is unconscionable within the meaning of the unwritten law’.  In order to understand the meaning and effect of s 51AC it is convenient to say something first about the meaning and effect of s 51AA, if only because the High Court has recently considered the meaning of the relevant expression in that section and its view on the meaning of that expression may inform a correct understanding of the word ‘unconscionable’ in s 51AC TPA.  As was explained in the joint judgment of Gummow and Hayne JJ inAustralian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153 (‘Berbatis’) at [37]:

‘…the expression “engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories” was to be understood with reference to the equitable doctrine expounded, in particular, by this court in Commercial Bank of Australia Ltd v Amadio.’

180               At the very least it is clear that the expression ‘conduct that is unconscionable within the meaning of the unwritten law’ does not refer merely to inequality in bargaining position.  However, there was some disagreement between the members of the Court as to the reach of breadth of the expression.  It clearly does include taking improper advantage of a person at a disadvantage in circumstances where equity would intervene.  For example, Gleeson CJ said at [7]-[8]:

‘In the context of s 51AA, with its reference to the unwritten law, which is the law expounded in such cases as those mentioned above, unconscionability is a legal term, not a colloquial expression.  In everyday speech, “unconscionable” may be merely an emphatic method of expressing disapproval of someone’s behaviour, but its legal meaning is considerably more precise.

In Blomley v Ryan, Fullagar J, after pointing out that the circumstances of disability or disadvantage that can be involved in unconscionable conduct are of great variety and are difficult to classify, gave, as examples, “poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary.”  The common characteristic of such circumstances is that they place one party at a serious disadvantage in dealing with the other.’

181               However, the expression in s 51AA may have a wider meaning.  Gummow and Hayne JJ leave open the question whether the phrase includes all circumstances where equity or the common law might intervene for reasons which might be described as ‘unconscionability’ at [42]-[46]; so too does Callinan J at [159]-[160]. 

182               Kirby J went considerably further then the majority.  He held that the word ‘unconscionability’ should be understood in its broader dictionary meaning, so as to include inequality in negotiating position, at least in some circumstances (see at [76]-[77], [98]-[99], [111]-[112]). The other members of the Court expressly rejected the breadth of this position, at least in the context of s 51AA. 

183               Although the approach of Kirby J does not represent the law as to the meaning of the expression in s 51AA, it may still be applicable to an understanding of the meaning of ‘unconscionable’ in s 51AC.  French J sitting at first instance in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 suggested that s 51AC was of a wider ambit than s 51AA in that it was not limited to equitable or common law notions of unconscionability.  Section 51AC did not arise in that case and his Honour’s comment was not considered in the subsequent appeal to the Full Court or by the High Court in Berbatis.  But on the face of it, it would seem that French J must be correct - the word ‘unconscionable’ in s 51AC of the TPA bears its ordinary or dictionary meaning.  Sundberg J in Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 (‘Simply No-Knead’) concluded (at [37]) that: ‘[w]hether conduct is unconscionable for the purpose of s 51AC is at large.’  In that case his Honour concluded (at [51]) that the evidence disclosed ‘an overwhelming case of unreasonable, unfair, bullying and thuggish behaviour in relation to each franchisee that amounts to unconscionable conduct...’  In my view the comment by French J and the decision of Sundberg J are plainly correct.  The word ‘unconscionable’ in s 51AC of the TPA is not limited to the meaning of the word at common law or at equity. 

184               The ordinary or dictionary meaning of the word ‘unconscionable’ was explained in Hurley v McDonalds Australia Ltd [1999] FCA 1728 at [22]:

‘For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated - Cameron v Qantas Airways Ltd (1994) 55 FCR 147 at 179. Whatever “unconscionable” means in s 51AB and s 51AC, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable - Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262. The various synonyms used in relation to the term ‘unconscionable’ import a pejorative moral judgment - Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 283-4 and 298.’

185               In order to find that conduct is ‘unconscionable’ it is necessary to do more than merely show that the behaviour is misleading or deceptive, or otherwise in breach of some other provision of the TPA.  What is necessary is to show that the conduct is so unacceptable that it can properly be described as ‘unconscionable’.  Normally it might be expected that behaviour would only be ‘unconscionable’ if some moral fault or responsibility is involved.  Normally it might be expected that this would involve either a deliberate act, or at least a reckless act.  Mere unreasonableness or unfairness may not be sufficient, at least in the absence of some moral fault.  This is why it was critical to the conclusion he reached in Simply No-Knead that Sunberg J was able to find an ‘overwhelming case of unreasonable, unfair, bullying and thuggish behaviour’.  Of course, those words are not a definition of ‘unconscionable’.  But having made that finding it is quite apparent that the behaviour could properly be characterised as ‘unconscionable’.

186               The particulars of ‘unconscionability’ pleaded by the applicant included:

·        the first and/or second respondent failed to provide a disclosure document to Messrs Atkins, Page, Tucker and Werner prior to their entry into the franchise agreement. 

       This allegation is untrue in relation to Mr Werner.  What significance it has in relation to Messrs Atkins and Page is unclear, given that there was no obligation to provide a Disclosure Document to them at the time that they entered into their franchise agreement.  The situation in relation to Mr Tucker is dealt with in more detail below.  As to this allegation there is nothing in the respective respondents’ conduct which, in my view, could be described as ‘unconscionable’.

·        The first and/or second respondent failed or refused to provide the franchisees with written franchise documents. 

       This allegation is untrue in relation to Messrs Carroll and Werner.  It is true in relation to Messrs Atkins, Elston, Page and Tucker.  The evidence as to the reasons why the franchise documents were not provided has already been discussed.  The only evidence before me is that the documents were with the lawyers for drafting together with a suggestion that the drafting was delayed by the unavailability of a copy of the Code (apparently prior to August 1998).  It would appear that the documents were available by November 1999 when they were provided to Carroll.  By that time the franchise with Mr Atkins had been terminated by Mr Atkins.  The franchises of Messrs Elston, Page and Tucker were in the process of being terminated by the franchisees (if they had not already been).  Certainly the working relationship would seem to have broken down by then.  Taking all these things into account I do not think that the respective respondents’ conduct in respect of this particular could be described as ‘unconscionable’.

·        The first respondent failed to deliver goods ordered by the franchisee in accordance with the representations made by or on behalf of the first respondent. 

       This issue has already been dealt with at considerable length in these reasons.  This includes the management and financial problems that the first respondent was experiencing at relevant times and which I have identified as the cause of the problems that the respondent had in providing adequate delivery.  The applicant has conceded in its submissions that this was the cause of those problems.  Looked at in this context I do not think that the failure of the first respondent to deliver the goods any faster could be described as ‘unconscionable’.

·        The quality of goods delivered by the first respondent was not in accordance with the representations made on or behalf of the first respondent. 

       Ditto.

·        The first respondent refused to provide refunds for faulty goods. 

       The evidence, once tested, simply did not support this allegation.  Upon the whole of the evidence I am satisfied that the first respondent did not make any refunds unless a warranty claim form was completed and the faulty goods returned[279].  In the absence of some factor that might suggest impropriety in my view such conduct was not ‘unconscionable’.  

·        The franchisees could purchase stock cheaper from other distributors. 

       There was very little evidence dealing with this particular.  In any event, even if it were true, it is not at all apparent how it could be unconscionable conduct at least unless there was some compulsion that the franchisees purchase all goods from the first respondent.  There was not.  Indeed, Mr Page purchased 80 per cent of his stock from elsewhere.  The only franchisee under a legal obligation to purchase solely from the first respondent was Mr Carroll.  He did not comply with it and purchased goods from elsewhere. 

·        The first and/or the second respondent refused to negotiate with the franchisees in relation to the franchise agreement. 

       It is in the nature of a franchise system that the agreements with each franchisee are likely to be reasonably standard: see cl 4(1)(b) of the Franchise Code quoted below.  And there is nothing surprising or inappropriate in the use of standard term contracts.  Of course it may be different where a party has expended considerable funds in advance of entering the written contract and is presented with an unreasonable and unexpected standard document.  In such a case the party may effectively be a ‘captive’.  If the franchisor, knowing of this, refuses to negotiate then this might be viewed as ‘unconscionable’ or as an aspect of it: see Simply No-Knead at [39]-[41], [43]-[44].  So, for example, if the existing franchisees had been presented with the documents that were provided to Messrs Carroll and Werner with the requirement that they execute the documents ‘or else’ then this might be considered as ‘unconscionable’.  Effectively they would have had no choice because of the commitment they had already made in entering into the franchise.  But they were not given an ultimatum.  The only one who was was Mr Werner.  He had not had any previous dealings with the respondents other than by reference to documents which should have alerted him to the fact that the franchise documentation was going to be standard form and that he would have to execute it if he wanted the franchise.  He did not inquire of Mr Webster to ascertain the terms of the franchise agreement he had signed, even though he knew that Mr Webster had signed it.  In any event he was not ‘a captive’.  He exercised the real negotiating power he had and refused to sign the franchise agreement.  If he has any complaint it is with Mr Webster, not with the first or second respondent.  In my view the failure of the first or second respondent to vary the terms of the standard form document so as accommodate the demands of Mr Werner did not constitute ‘unconscionable’ conduct. 

·        The first and second respondents were not honest in their dealings with the franchisees. 

       I have dealt with this allegation above in relation to Mr Hoberg.  The respondents exaggerated.  They may have been mistaken, such as in their belief that their ownership of the rights to the Lock Right meant that US made and Australian made Lock Rights were the same. But I have not found that the respondents or any of them was deliberately dishonest.

·        The first respondent sold its products in the franchise areas in breach of the franchise agreement. 

       I have dealt with this above.  I am not satisfied that the allegation is true.

187               Even if all of the above allegations are considered cumulatively I am not satisfied that they constitute ‘unconscionable conduct’.

188               Presumably in acknowledgment of the weakness of the case as pleaded, in its written submissions the applicant basically repeated all of its allegations in relation to breaches of s 52 and s 53 of the Act to suggest that, considered together, they constituted ‘unconscionable conduct’.  In oral submissions the applicant went event further and suggested that the respondents’ pleadings provided evidence of unconscionability: contrast Jamieson v The Queen (1993) 177 CLR 574.  In particular the applicant concentrated on the actions of the first respondent in relation to the re-packaging of the Lock Right to allege that its conduct was unconscionable.  I can see no reason why the applicant should not be limited to its pleadings in this regard.  In any event, proof that there have been many breaches of other provisions of the TPA is not sufficient in itself to establish a breach of s 51AC TPA.  Nor is s 51AC TPA to be treated as a general ‘catch all’ provision applicable to each and every inappropriate business practice adopted by a trading corporation in relation to the supply of goods.  The relevant conduct must be conduct which can be characterised as ‘unconscionable’.  In my view the applicant’s case fell well short of doing so.

189               As the conduct of the respondents was not ‘unconscionable’ for the purposes of s 51AC TPA it necessarily follows that the conduct was not  ‘conduct that is unconscionable within the meaning of the unwritten law’ for the purposes of s 51AA TPA.  As already pointed out, the latter expression is narrower than is the word ‘unconscionable’ in s 51AC. 

Franchise Code

190               Section 51AD TPA provides:

‘A corporation must not, in trade or commerce, contravene an applicable industry code.’

191               This provision is clear in its terms.  It does not impose some requirement that a corporation comply with the ‘spirit’ of a Code, assuming that one could be identified.  It certainly does not require that the corporation comply with provisions that might have been in a Code, but were not.  This is a regulatory provision.  There is no reason that it should not be read to mean what it says. 

192               The relevant Code in this case is the Franchising Code of Practice (‘the Code’) which is contained in the Schedule to the Trade Practices (Industry Codes – Franchising) Regulations[280].  At relevant times the relevant provisions of the Code provided:

‘4(1)    A franchise agreement is an agreement:

            (a)        that takes the form, in whole or part, of any of the following:

                       (i)         a written agreement;

                       (ii)        an oral agreement;

                       (iii)       an implied agreement; and

            (b)       in which a person (the franchisor) grants to another person (the franchisee) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor; and

            (c)        under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol:

                       (i)        owned, used or licensed by the franchisor or an associate of the franchisor; or

                       (ii)       specified by the franchisor or an associate or the franchisor; and

            (d)       under which, before starting business or continuing the business, the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor an amount including, for example:

                       (i)        an initial capital investment fee; or

                       (ii)       a payment for goods or services; or

                       (iii)      a fee based on a percentage of gross or net income whether or not called a royalty or franchise service fee; or

                       (iv)      a training fee or training school fee;

but excluding:

                       (v)       payment for goods and services at or below their usual wholesale price; or

                       (vi)      repayment by the franchisee of a loan from the franchisor; or

                       (vii)     payment for the usual wholesale price of goods taken on consignment; or

                       (viii)    payment of market value for purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue business under the franchise agreement.

(2)       For subclause (1), each of the following is taken to be a franchise agreement:

            (a)     transfer, renewal or extension of a franchise agreement;

            (b)     a motor vehicle dealership agreement.

(3)       However, any of the following does not in itself constitute a franchise agreement:

           

…

 

5          Application

(1)       This code applies to a franchise agreement entered into on or after 1 October 1998.

(2)       For the parties to a franchise agreement entered into before 1 October 1998:

            (a)     clauses 14 (Copy of lease), 15 (Association of franchisees) and 17 (Marketing and other cooperative funds) apply to the parties on and after 1 July 1998; and

            (b)     the rest of this code applies to the parties on and after 1 October 1998.

(3)       However, this code does not apply to a franchise agreement:

            …

            (c)     if:

                     (i)      the franchise agreement is for goods or services that are substantially the same as those supplied by the franchisee before entering into the franchise agreement; and

                     (ii)     the franchisee has supplied those goods or services for at least 2 years immediately before entering into the franchise agreement; and

                     (iii)    sales under the franchise are likely to provide no more than 20% of the franchisee’s gross turnover for goods or services of that kind for the first year of the franchise.

(4)       Paragraph (3) (c) ceases to apply to a franchise agreement if:

            (a)     sales under the franchise provide more than 20% of the franchisee’s gross turnover for the goods or services for 3 consecutive years; and

            (b)     the franchisee tells the franchisor that paragraph (a) applies.

 

6          Requirement to give disclosure document

(1)       A franchisor must give a disclosure document in accordance with Annexure 1 to:

            (a)     a prospective franchisee; or

            (b)     a franchisee proposing to renew or extend a franchise.

 

 

(2)       A person who proposes to transfer a franchise or a franchised business must give a disclosure document in accordance with Annexure 2 to the proposed transferee.

(3)       However, a proposed transferee who is the franchisor may waive this requirement.

(4)       If a subfranchisor proposes to grant a subfranchise:

            (a)     the franchisor and subfranchisor must either:

                     (i)      individually give a disclosure document to the franchisee or prospective franchisee; or

                     (ii)     give to the franchisee or prospective franchisee a joint disclosure document that addresses the respective obligations of the franchisor and subfranchisor; and

            (b)     the subfranchisor must comply with the requirements imposed on a franchisor by this Part.

(5)       If a franchisor proposes to grant a master franchise, the franchisor must give a disclosure document under Annexure 1 to the prospective franchisor.

           

            Note   This does not apply to a franchise agreement to which paragraph 5(3)(a) applies.

8          Application

           

            This Division applies to a disclosure document in accordance with Annexure 1 or 2 for:

            (a)     a prospective franchisee; or

            (b)     a franchisee proposing to enter into, renew or extend a franchise agreement.

 

9          Purpose and content of disclosure document

(1)       The purpose of a disclosure document is to give to a prospective franchisee, or a franchisee proposing to enter into, renew or extend a franchise agreement, information from the franchisor to help the franchisee or prospective franchisee to make a reasonably informed decision about the franchise.

(2)       A disclosure document:

            (a)     must include the information mentioned in Annexure 1; and

            (b)     may include additional information under the heading ‘Other relevant disclosure information’; and

            (c)     must be signed by a director or an executive officer of the franchisor.

(3)       A franchisor must update its disclosure document annually within 3 months after the end of each financial year of the franchisor.

 

10        Franchisor obligations

            A franchisor must give a copy of this code and a disclosure document in the form set out in Annexure 1:

            (a)     to a prospective franchisee at least 14 days before the prospective franchisee:

                     (i)      enters into a franchise agreement or an agreement to enter into a franchise agreement; or

                     (ii)     pays non-refundable money to the franchisor or an associate of the franchisor in connection with the proposed franchise agreement; or

            (b)     to a franchisee at least 14 days before renewal or extension of the franchise agreement.

 

11        Advice before entering into franchise agreement

(1)       The franchisor must not:

            (a)     enter into, renew or extend a franchise agreement; or

            (b)     enter into an agreement to enter into, renew or extend a franchise agreement; or

            (c)     receive non-refundable money under a franchise agreement or an agreement to enter into a franchise agreement;

            unless the franchisor has received from the franchisee or prospective franchisee a written statement that the franchisee or prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document and this code.

(2)       Before a franchise agreement is entered into, the franchisor must have received from the prospective franchisee:

            (a)     signed statements, that the prospective franchisee has been given advice about the proposed franchise agreement or franchised business, by any of:

                     (i)      an independent legal adviser;

                     (ii)     an independent business adviser:

                     (iii)    an independent accountant; or

            (b)     for each kind of statement not received under paragraph (a), a signed statement by the prospective franchisee that the prospective franchisee:

                     (i)      has been given that kind of advice about the proposed franchise agreement or franchised business; or

                     (ii)     has been told that that kind of advice should be sought but has decided not to seek it.

(3)       Subclause (2):

            (a)     does not apply to the renewal or extension of a franchise agreement with a franchisor; and

            (b)     does not prevent the franchisor from requiring any or all of the statements mentioned in paragraph (2) (a).

19        Current disclosure document

           

(1)       A franchisor must give to a franchisee a current disclosure document under Annexure 1 within 14 days after a written request by the franchisee.

(2)       However, a request under subclause (1) can be made only once in 12 months.’

193               In my view the word ‘franchise’ in the Code bears it normal meaning.  For the reasons discussed above I am satisfied that each of the franchisees entered into a ‘franchise’ for the purpose of the Code.  I am also satisfied that each of them entered into a ‘franchise agreement’ as defined. 

194               It is clear from cl 5(1) and (2) of the Code that the obligations under the Code applied in relation to all of the franchisees as from 1 October 1998.  This is subject to one qualification.  Mr Page had been in the business of selling four-wheel drive accessories for at least two years before entering into the franchise agreement[281].  As a matter of fact the goods sold under the franchise were no more than 20 per cent of the total goods sold during the period of the franchise[282].  On this basis it might be argued that the Code had no application to Mr Page pursuant to cl 5 (3)(c) of the Code.  However, his evidence also was that at the time he entered into the franchise he expected that 50 per cent of his business would involve the first respondent’s products[283].  The exclusion in cl 5(3)(c) refers to the ‘likelihood’ that sales of the franchisor’s products providing no more than 20 per cent of turnover during the first year of the franchise.  Clearly enough that likelihood must be assessed as at the date the franchise is entered into.  As it happens it does not much matter in this case whether the Code applied to Mr Page or not (see below).  Nevertheless, I am satisfied on the whole of the evidence that it did apply to him.

195               Although the Code is applicable to each of the franchisees, most of the obligations under the Code are prospective.  The obligation to provide a Disclosure Document is an obvious example.  That obligation only arises where the person is a ‘prospective’ franchisee (cl 6(1)(a)) or where an existing franchisee proposes to renew or extend a franchise agreement (cl 6 (1)(b)) or within 14 days of a request by the franchisee for a copy of the Disclosure Document.  There is no obligation under the Code for the first or second respondent to provide a Disclosure Document to an existing franchisee who does not request one unless the franchise is being renewed or extended.

196               The applicant pleads that the first and/or second respondent failed to comply with the Code in that they failed to provide the franchisees Messrs Atkins, Page, Tucker and Werner with a Disclosure Document. 

197               Mr Atkins gave evidence that he requested a copy of the franchise agreement[284].  Mr Hoberg said that he could not recall the request[285].  There is no evidence of the date of the request and no basis for any inference that it was after 1 October 1998.  In any event, the request was for a franchise agreement, not a Disclosure Document.  As the applicant conceded in its final oral submission, there is no obligation under the Franchise Code for a franchisor to provide a written franchise agreement to a franchisee.  As is plain from cl 9 of the Code the purpose of the two documents is very different – what Mr Atkins wanted was the final written contract that he had with the first respondent.  Mr Atkins entered into his franchise agreement before 1 October 1998.  Consequently, in the absence of any request by Mr Atkins, the first and/or second respondents were under no obligation to provide him with a Disclosure Document.  I am not satisfied that the first and second respondents breached the Code in not providing a Disclosure Document to Mr Atkins.

198               Mr Page gave evidence that he also requested documents.  Mr Hoberg gave evidence, and I accept, that what Mr Page was seeking was a copy of the letter which outlined his rights under the franchise agreement.[286]  He was not seeking either the franchise agreement prepared under the Code or the Disclosure Document.  The applicant in its written submissions says that the effect was the same and that the request should be treated as a request under cl 19 of the Code.  It was not.  Indeed the submission is more than a little surprising.  It is not the task of the Court to redraft the Code to as to achieve a comparable effect.  It is perfectly plain from the Code itself that the Disclosure Document is different from the agreement to which it refers and that both of them are different from the letter that Mr Page was seeking.  Mr Page entered into his franchise agreement before 1 October 1998.  Consequently, in the absence of any request by Mr Page, the first and/or second respondents were under no obligation to provide him with a Disclosure Document.  I am not satisfied that the first and second respondents breached the Code in not providing a Disclosure Document to Mr Page.

199               Mr Elston clearly did seek a copy of the written franchise agreement.  He wrote to the first respondent on 17 November 1999 claiming that he had previously sought the agreement on the telephone and claiming that he was entitled to a copy of the agreement within 14 days of the request[287].  He claimed to have written the letter on legal advice[288].  Mr Hoberg claimed that he had never personally seen the letter.  This may be true, but I accept that the first respondent received it[289].  However, that request was for a franchise agreement.  It was not for a Disclosure Document.  Assuming that Mr Elston understood the advice he received that advice was in error.  There was no obligation under the Code to provide any franchise agreement and certainly not in relation to a franchise entered into before 1 October 1998.  Mr Hoberg accepted that Mr Elston had asked for a Disclosure Document, but presumably on a different occasion from the letter of 17 November 1999[290].  The first respondent provided a Disclosure Document to Mr Elston in January 2000 apparently after the intervention of the ACCC[291].  By then Mr Elston had decided to terminate the franchise[292].  In the absence of any evidence as to when the request for a Disclosure Document (as distinct from the franchise agreement) was made, I am not satisfied that there was any breach of the Code by reason of any delay in the delay in providing a Disclosure Document to Mr Elston.

200               I have already found that Mr Tucker entered into a franchise agreement with the first respondent in February 1999.  The obligations under the Code were applicable to that agreement.  The first respondent was obliged to provide to Mr Tucker a copy of the Code and a Disclosure Agreement (cl 6 and cl 10 of the Code) and it was obliged to obtain from Mr Tucker the written statement required by cl 11 of the Code.  I am satisfied that these documents were not provided to Mr Tucker.  I am satisfied that the first respondent breached the Code in not doing so and consequently that the first respondent breached s 51AD TPA.

201               As to Mr Werner, he was to receive a transfer of a franchise from Mr Webster.  In these circumstances it may be that it was Mr Webster who was obliged to provide him with a Disclosure Document (see cl 6(2) and cl 12 of the Code).  In any event I find that he did receive a Disclosure Document from the second respondent[293].  He also signed a written statement which said that he had received a copy of the Code, that he had received a copy of the Agreement and that he had taken legal advice[294].  There was no breach by either the first or second respondent of any obligation they had to provide a Disclosure Document to Mr Werner.  This was finally accepted in the written submissions of the applicant.  However a complaint was then made that the franchise agreement did not entirely comply with the details in the Disclosure Document.  Some mention has been made of this above.  It suffices to say that whatever issues might arise in that context were not pleaded, save for the question of whether there was any misrepresentation that Mr Werner relied upon and (perhaps) in relation to the issue of unconscionability.  I have already dealt with that issue.

202               Finally, though not pleaded, the applicant in its written submissions also argued that there had been a breach of the Code in not providing a Disclosure Document to Mr Carroll.  In fact the applicant’s own case was that Mr Carroll did receive and sign a Disclosure Document and that he did execute a written statement as required by the Code[295].

203               The applicant also pleaded that the respondents breached the Code in failing to provide the franchisees with a written franchise agreement.  Agreements were provided to Mr Carroll and to Mr Werner (who did not sign it).  In relation to the others the short answer, accepted by the applicant in final oral submissions, is that there is no obligation under the Code to provide a written agreement to anyone, although the Disclosure Document seems to assume that there will be a written agreement.  In my view there was no breach of the Code in not providing the written agreement to any of the franchisees.  

204               The applicant also pleads that the first and/or second respondents breached the Code in refusing to negotiate with the franchisees in relation to franchise agreements.  The short answer again is that there was no obligation to do so.  Indeed, the terms and requirements of the Disclosure Document seem to infer (although not require) that franchise agreements will be in relatively standard form. 

205               Finally the applicant pleads that the first and second respondent breached the Code in that they failed to provide Messrs Tucker, Carroll and Werner with a Disclosure Document, failed to obtain from them a statement that they had received independent advice in relation to the franchise and failed to clearly disclose to the franchisee the name of the franchisor.  I have already dealt with the position of each of Messrs Tucker, Carroll and Werner in relation to the obligation to provide the Disclosure Document and the written statement.  In that respect the allegation is only true in relation to Mr Tucker.  I have dealt with it above. 

206               The suggested obligation to ‘clearly disclose the name of the franchisor’ seems to be based upon the assumption that the first and second respondent could agree amongst themselves which of them would be the franchisor at a particular point in time.  Both parties seem to have assumed that the franchisor could be changed by the first and second respondents.  However, the franchise agreement imposed ‘personal’ continuing obligations upon the franchisor.  In the absence of any express agreement by the franchisees those obligations could not be transferred from the first respondent to the second respondent.  On this understanding of the law it seems to me that there was no confusion about who the franchisor was.  It is plain that the franchisor in relation to Mr Tucker was and remained the first respondent.  Indeed, the second respondent did not even exist at the time that Mr Tucker commenced negotiating with the first respondent[296].  There is no evidence that he was ever told that there was to be a different franchisor.  He was told that his franchise was part of a broader system of franchises – the first respondent was the franchisor in relation to that system.  As to Mr Carroll and Mr Werner it is clear from the documentation that the franchisor (or proposed franchisor in relation to Mr Werner) was the second respondent.  Whether this meant that the agreement between the first and second respondents (whatever its terms) was in some measure ineffective in relation to the other franchisees is not an issue that arises in this case.  Consequently, to the extent that there is any obligation under the Code to ‘clearly disclose the name of the franchisor’ this was done.  However, this should not be taken as any acknowledgement by me that the Code does impose any such obligation.

207               By reason of the foregoing I am satisfied that the first respondent breached s 51AD TPA in not providing the Disclosure Documents to Mr Tucker as required by cl 6 and cl 10 of the Code and in not obtaining from him the written statement as required by cl 11 of the Code.

Remedies Against the First and Second Respondent

208               To summarise, I am satisfied that the first respondent has breached the TPAas follows:

(a)        It engaged in conduct that was misleading in breach of s 52 TPAin that: 

(i)      As to Mr Atkins it failed to inform him that the first respondent it would not comply with the usual industry standard as to the time for supply.

(ii)      As to Mr Elston it made representations to him as to time for supply and as to quality of goods which representations were misleading.

(iii)     As to Mr Page it made representations that the problems that the first respondent had had as to time for supply and as to quality of goods were being fixed.  These representations were misleading.

(iv)     As to Mr Tucker it made representations to him as to quality of goods which were misleading.

            (b)        It breached s 53(1) TPAin:

(I)            expressly representing to Mr Atkins on or after July 1999 that the Australian made product was the ‘exact same product’ as the US made product;

(II)         advertising in various four-wheel drive magazines from July-December 1999 that the product being supplied by the first respondent was the ‘Powertrax’ product when an increasing proportion of the product supplied over that period was made by the first respondent in Australia and not made by contractors in the US;

(III)       not informing the franchisees and others before July 1999 that as from July 1999 some of the product that the first respondent would supply in response to orders for Lock Right products would be made by the first respondent in Australia and not made by contractors in the US.

(c)      It breached s 51AD TPA in not providing the Disclosure Documents to Mr Tucker as required by cl 6 and cl 10 of the Code and in not obtaining from him the written statement as required by cl 11 of the Code.

209               I am satisfied that the second respondent engaged in conduct in trade or commerce which was misleading in breach of s 52 of the TPA in that in the negotiations between the second respondent and Mr Carroll the second respondent failed to inform Mr Carroll that it did not and would not comply with the usual industry standards as to the time for supply.

210               What remedies are available against the first respondent?  The applicant has sought nearly three pages of various remedies against the respondents.  Given that these reasons are already too long and that there is no basis for most of the remedies sought I do not propose to detail each and all of the remedies sought.  To summarise them, the applicant seeks declarations, injunctions, orders for compensation to the franchisees and orders to implement compliance programmes.  In bringing the proceedings and in seeking these remedies the applicant relied upon ss 80 and 87(1A) TPA.  Section 80 and s 87provide, so far as is relevant:

‘80 Injunctions

1)        Subject to subsections (1A), (1AAA) and (1B), where, on the application of the Commission or any other person, the Court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute:

            (a)     a contravention of any of the following provisions:

                     (i)    a provision of Part IV, IVA, IVB, V or VC;

                        …

            (b)     attempting to contravene such a provision;

            (c)     aiding, abetting, counselling or procuring a person to contravene such a provision;

            (d)     inducing, or attempting to induce, whether by threats, promises or otherwise, a person to contravene such a provision;

            (e)     being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or

            (f)      conspiring with others to contravene such a provision;

the Court may grant an injunction in such terms as the Court determines to be appropriate.

…

(4)       The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised:

            (a)     whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind;

            (b)     whether or not the person has previously engaged in conduct of that kind; and

            (c)     whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind.

(5)       The power of the Court to grant an injunction requiring a person to do an act or thing may be exercised:

            (a)     whether or not it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing;

            (b)     whether or not the person has previously refused or failed to do that act or thing; and

            (c)     whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person refuses or fails to do that act or thing.

(6)       Where the Minister or the Commission makes an application to the Court for the grant of an injunction under this section, the Court shall not require the applicant or any other person, as a condition of granting an interim injunction, to give any undertakings as to damages.

…

87 Other Orders

 

(1)       Without limiting the generality of section 80, where, in a proceeding instituted under, or for an offence against, this Part, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subs) in contravention of a provision of Part IV, IVA, IVB or V, the Court may, whether or not it grants an injunction under section 80 or makes an order under section 80A or 82, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.

(1A)     Without limiting the generality of section 80, the Court may, on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IVA, IVB or V or on the application of the Commission in accordance with subsection (1B) on behalf of such a person or 2 or more such persons, make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2)) if the Court considers that the order or orders concerned will compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage, or will prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person.

(1B)     Where, in a proceeding instituted for an offence against section 79 or instituted by the Commission or the Minister under section 80, a person is found to have engaged (whether before or after the commencement of this subsection) in conduct in contravention of a provision of Part IVA, IVB or V, the Commission may make an application under subsection (1A) on behalf of one or more persons identified in the application who have suffered, or are likely to suffer, loss or damage by the conduct, but the Commission shall not make such an application except with the consent in writing given before the application is made by the person, or by each of the persons, on whose behalf the application is made.

(1C)    An application may be made under subsection (1A) in relation to a contravention of Part IVA, IVB or V notwithstanding that a proceeding has not been instituted under another provision of this Part in relation to that contravention.

(1CA)  An application under subsection (1A) may be commenced:

            (a)     in the case of conduct in contravention of Part IVA - at any time within 2 years after the day on which the cause of action accrued; or

            (b)     in any other case - at any time within 3 years after the day on which the cause of action accrued.

(1D)    For the purpose of determining whether to make an order under this section in relation to a contravention of Part IVA, the Court may have regard to the conduct of parties to the proceeding since the contravention occurred.

(2)       The orders referred to in subsection (1) and (1A) are:

            (a)     an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, or of a collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date before the date on which the order is made as is specified in the order;

            (b)     an order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date before the date on which the order is made as is so specified;

            (ba)   an order refusing to enforce any or all of the provisions of such a contract;

            (c)     an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage;

            (d)     an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage;

            (e)     an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at his or her own expense, to repair, or provide parts for, goods that had been supplied by the person who engaged in the conduct to the person who suffered, or is likely to suffer, the loss or damage;

            (f)      an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at his or her own expense, to supply specified services to the person who suffered, or is likely to suffer, the loss or damage; and

            (g)     an order, in relation to an instrument creating or transferring an interest in land, directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to execute an instrument that:

         (i)      varies, or has the effect of varying, the first-mentioned instrument; or

         (iii)    terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the first-mentioned instrument.

            …’

211               In addition this Court has jurisdiction to make declarations of right in relation to a matter in which it has original jurisdiction: s 21 Federal Court of Australia Act 1976 (Cth).  (I note that the jurisdiction to make declarations under s 163A TPA has no application in this case: see Westpac Banking Corporation v Northern Metals Pty Ltd (1989) ATPR 40-953 at 50, 417).

212               The applicant seeks various injunctions the effect of which is to restrain the respondents from making untrue statements in relation to franchises or in relation to goods and to restrain the respondents from breaching the TPA.  It is clear from the terms of s 80(4) and (5) of the TPAthat the jurisdiction to grant an injunction is wider under s 80 TPAthan it would be under traditional equitable principles.  An injunction can be granted under the TPA if it is in the ‘public interest’.  So, for example, an injunction might be granted to mark the Court’s disapproval of the behaviour of the respondent: Trade Practices Commission v Mobil Oil Australia Ltd (1985) 4 FCR 496 at 299.  Nevertheless, what is being sought is an injunction.  The discretion to grant the remedy must be exercised judicially, taking account of the circumstances and the nature of the remedy being sought.  Clearly enough the traditional rules in relation to the grant of injunctions remain relevant: see Lockhart J in ICI Australia Operations Pty Ltd v Trade Practices Commission  (1992) 38 FCR 248 at 256-257.  For example, the injunction should be capable of being expressed in sufficiently clear terms that it is capable of being complied with without the continual supervision of the Court: see Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 at 26 [60]; contrast 48-49 [121]-[122].

213               It is clearly inappropriate to make an injunction as broad as the ones sought by the applicant e.g. an injunction restraining the respondents from breaching the TPA.  It is entirely inappropriate to use the enforcement powers of this Court effectively to add a further provision to Pt VI of the TPA.

214               Nor can I see any particular benefit or purpose to making an injunction requiring the respondent to carry on a compliance programme in the absence of some clear benefit that such a programme might deliver in terms of future behaviour by the respondents.  In this case such an order would be entirely punitive.  In particular there is no material before me to suggest that the respondents are still actively promoting a franchise system.  Nor is there any evidence to suggest that such of their previous franchises that remain are not entirely satisfied with the service they are obtaining.  The applicant did refer to cases where parties had consented to the making of injunctions containing compliance programmes where the effect would seem to have been punitive only.  However, for my part consent orders in these circumstances are of little precedential value.

215               This still leaves the issue whether an appropriately drafted injunction should be granted.  One objection that might be made to a more specifically drafted injunction is that it may not achieve what a reasonable bystander would consider to be a fair result in the particular circumstances.  For example, the obvious solution for the respondents to adopt in order to comply with a more narrowly drafted injunction is to do that which they did do in relation to Mr Carroll - for Mr Hoberg to stop making exaggerated claims and instead to use cautiously drafted documents that comply with the Franchise Code.  As I have already found in relation to Mr Carroll, if that procedure was adopted then there was no breach of the TPA.  But this does not assist Mr Carroll very much.

216               However, such an objection would misunderstand the extent of the power to grant an injunction under s 80 TPAconsidered in the context of the statutory scheme.  It is clear that injunctions can be made under s 80 TPAif it is in the public interest to do so: see e.g. Tamberlin J in Australian Competition and Consumer Commission v Top Snack Foods Pty Ltd (1999) ATPR 41-708 at [97].  As a general proposition the TPAleaves it to the market place to ensure efficient and appropriate commercial outcomes.  What the TPAattempts to achieve is to ensure that the market operates fairly - but it does so by establishing norms in relation to the market processes, not market outcomes.  Consequently it does not ensure that a particular person will obtain the best price or the best agreement.  It does not even ensure that that person will obtain a fair agreement.  What it does do is seek to ensure that that person has a fair opportunity to obtain that which the market should, over time, deliver (at least according to the philosophy on which the TPAis based).  The relevant ‘public interest’ must be understood in the context of the role of the TPAin establishing normative processes in relation to the operation of the whole market: see Australian Competition and Consumer Commission v Virgin Mobile Australia Pty Ltd [2002] FCA 1548.

217               The purpose of an appropriately drafted injunction may be merely to reinforce to the market place that the restrained behaviour is unacceptable.  A declaration may achieve the same result, but so long as it is otherwise appropriate that is no reason why an injunction should not also be made if it is in the public interest (as so understood) to do so.  On this basis an injunction could still be made where (as here) there was little likelihood that the respondents might engage in the restrained behaviour.

218               In my view it is appropriate in this case to make an injunction directed to the first and second respondent restraining each of them from entering into franchise agreements without giving to the prospective franchisee detailed information both as to the quality of the goods that will be supplied and as to the time for delivery of such goods.  Information should also be given of the orders made in these proceedings.  I note that there are a number of examples where similar injunctions have been granted after full consideration.  I refer, for example, to the injunction granted by Mansfield J in Australian Competition and Consumer Commission v Grant [2000] FCA 1564.  I note that the order does not limit what further information the first or second respondents may provide.  This could include, for example, information which explains, qualifies or even disputes the information that is required to be provided.  So, for example, the injunction requires information about relevant complaints to be provided to a prospective franchisee.  The order does not prevent the respondents from saying that the complaint is wrong or whatever.  Indeed, if that information, considered by itself, was misleading then they would be obliged to disclose further information.  So, for example, if they had received complaints from 80 per cent of their direct customers, but there were no existing franchisees, to disclose that there were no complaints by franchisees without also disclosing some details of the complaints from others might well be misleading.  Similarly, if any further information that is provided is itself misleading then this might also be a breach of the TPA.

219               Given the background to the breaches of the TPAin relation to the Lock Right and the Franchise Code I am not prepared to make injunctions in relation to those issues.  In particular, in the absence of any evidence as to the current market acceptance of the Australian product vis-a-vis the US product or of any confusion in that regard I am not prepared to make any orders which might affect the current operations of the respondents in the current manufacture and trading of the Lock Right products.  Nor do I think it appropriate to try to develop by myself some injunction directed to what the respondents might do in the future if they found themselves in a similar situation to that which they were in 1998/1999.  In this regard I note that the applicant has not made suggestions as to the terms of any specific injunction that it seeks. 

220               The applicant seeks orders for the refunds of the franchise fees paid by the franchisees referred to above.  The applicant seeks these orders pursuant to s 87 TPA.  It is a pre-condition to the applicant making such an application that the persons who suffered the relevant loss or damage have consented to the Commission making an application on their behalf: see s 87(1B) TPA.  At the close of the evidence there was no pleading and no evidence to establish that consent had been given.  The applicant said that it was not required.  The applicant also said that there had been no reported case where such a requirement had been mentioned.  This has caused me to consider the question carefully.  It may be that it was strictly unnecessary to plead that such consent had been given in light of the express pleading that the applicant was seeking orders under s 87 of the TPA.  In those circumstances it may have been implicit that the applicant was claiming that it had complied with the necessary preconditions: see Order 11 rule 6 of the Federal Court Rules.  Even so I would have thought it sensible to plead that the consent existed, if only to identify if the issue was likely to be one that was in dispute. 

221               However, in the absence of any agreement by the respondent as to the existence of such consent then I have no doubt that it is an essential pre-condition to the applicant obtaining any order under s 87 TPAthat the applicant establish that it has such consent.  This is clear simply as a matter of establishing the entitlement of the ACCC to the orders it seeks.  It is also clear if one considers the position of the persons who have suffered a loss.  The effect of the consent may well be that that person is then at least estopped from taking further or inconsistent proceedings at a later time: see Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.  Indeed, it may go further.  The person giving the consent may effectively be a party to the application being a ‘person on whose behalf the application is made’: s 87(1A)(c) TPA.  In this case in light of the limited evidence called by the applicant in relation to damages the various franchisees might well be prejudiced if they are estopped in subsequent proceedings from pursuing any other compensation to which they might be entitled.  I raised this matter expressly with counsel for the applicant who took instructions in relation to it.  She informed me that the applicant still wished to obtain orders under s 87 TPA.  In my view in order to do so it was necessary for the applicant to establish that such consent exists.

222               The applicant requested that I give leave for it to re-open its case for that purpose if I found that such consent needed to be proved.  The respondent did not object to that course providing that the relevant consents existed before the application was, in fact, made.  I gave leave on that basis.  In response to it the applicant has sought to tender written consents made on 7 August 2003 and has applied to amend its application.  Plainly enough it did not have the written consent when the application for relief on behalf of the franchisees was first claimed on 27 September 2001.  In its covering submission accompanying the written consents the applicant attempted to argue that the affidavits made by the franchisees and the assistance provided by the franchisees to the applicant constituted “written consent” for the purposes of s 87(1B) TPA.  They obviously are not. 

223               Even more concerning, the applicant has attempt to include, as part of the written consent now obtained from the franchisees, evidence of the damage suffered by the franchisees.  This was evidence which was not contained in the franchisees’ affidavits and not produced at all during trial.  Indeed, in view of the orders made limiting the evidence that could be called in chief such evidence could not have been produced.  It is plainly inappropriate to attempt to introduce this material by the ‘back door’.  If the evidence of the written consents was otherwise admissible I would exclude it under s 135 of the Evidence Act 1995 (Cth).  However, this is unnecessary.  The agreement of the respondent for leave to re-open was plainly conditional upon the written consents having been in existence at the time that the application under s 87 was made.  They clearly were not.  In the circumstances there is no consent by the respondent for leave for the applicant to re-open its case and I do not give any such leave.

224               I note that the application made by the applicant may well have been premature in any event in that it is a precondition of such an application that there is a judicial finding of a relevant breach of the TPA: see Australian Competition and Consumer Commission v Shell Co of Australia (1997) 142 ALR 569 at 573-574.  But, premature or not, the application has for refunds under s 87 TPA has been made and must be dealt with.  It must be dismissed. 

225               I also note that if written consents had been in existence at the time that the applications seeking refunds under s 87 TPA had been made and if I had jurisdiction to deal with those applications on the basis of the evidence properly then before me then I would have reached the following conclusions:

(a)    As to the franchise fees themselves I have already discussed the basis upon which these were calculated.  In broad terms the cost to the respondents of establishing the franchise was probably similar to and maybe exceeded the amount of the fee.

(b)   The only means by which I could be satisfied that the franchise fee should be refunded is if the total business losses of each franchisee as a result of the breaches of the TPA were greater then the franchise fee paid by that franchisee.

(c)    The only franchisee who gave any useful evidence of such losses was Mr Carroll[297].  Obviously there were other causes of the failure of his business, but I am satisfied that the failure of the respondents to deliver goods to him within the usual period that might be expected within the industry (about 14 days, although with some allowance for delivery to Perth) did cause a loss to the business which was greater than the amount of his franchise fee ($20,000). 

(d)   Given that I have found that there was a relevant breach of the TPAin relation to him it would be appropriate to order a refund to him if the pre-conditions for doing so under s 87(1B) of the TPA had been satisfied. 

(e)    In relation to the other franchisees there was either no evidence at all as to their losses or what there was was entirely inadequate to make any assessment of the loss, even in comparison with the relatively small size of the franchise fee.  I would not be prepared to make an order for a refund for any of them even if s 87(1B) TPA had been satisfied. 

226               The applicant also seeks declarations.  It agree that appropriate declarations should be made. 

Mr Hoberg

227               Each of ss 51AD, 52 and 53 TPA are directed to the behaviour of corporations, not individuals.  However, an injunction can be made unde s 80 TPAdirected to a person who ‘aided, abetted, counselled or procured’ a corporation to contravene the above provisions.  An order for compensation can be made under s 87 TPA against a person ‘involved in’ the relevant contravention.  Mr Hoberg’s role generally in the management of the first corporation and his role in the relevant contraventions has already been discussed.  I am satisfied that he has abetted and procured the relevant contraventions of s 52 and s 53 of the TPAdiscussed above.  I am also satisfied that he was ‘involved in’ them.  On the other hand, in light of the limited information as to why or how the first respondent breached the obligations under s 51AD TPA,I am not satisfied that Mr Hoberg was relevantly involved in the breach of that provision. 

228               For the same reasons that I was prepared to make injunctions against the first and second respondent I am also prepared to do so in relation to Mr Hoberg.  However, given the public purpose of making the injunctions I can see no reason to impose the same requirements upon Mr Hoberg that I have placed on the first and second respondents.  It is not possible to say what Mr Hoberg may be doing in the future.  It may be that he will continue as he is currently doing, but that is a matter entirely for him.  I can make no assumptions about it.  I think it sufficient for present purposes so far as he is concerned, that he should be required for a period to ensure so far as he is able that the terms of the orders that I propose to make be disclosed to any person to whom he is involved in selling a franchise or distributorship.  The making of such an injunction is a public statement that Mr Hoberg has been involved in a breach of the TPA.  The injunction should also mean that those dealing with Mr Hoberg in relevant circumstances are alerted that in the past he has been involved in a breach of the TPA.  Hopefully the order will not unduly restrict whatever future activities he may be involved in.

229               For the same reasons as I have not made orders under s 87 TPA in relation to the first and second respondents it is inappropriate to do so against Mr Hoberg.

230               The power to make declarations under the Federal Court Act does not contain a provision extending the ambit to persons ‘involved in’ a contravention whether or not a declaration could be made directed to Mr Hoberg.  I am not prepared to make any such declaration. 

Mr Hewitson

231               It is obvious that Mr Hoberg had the prime role both in the establishment of the franchise system and in dealing with individual prospective franchisees.  Mr Hewitson was responsible for other aspects of the business.  I am not satisfied that Mt Hewitson ‘aided, abetted, counselled or procured’ the first or second respondents to contravene s 51AD, or s 52 TPA.  I am also not satisfied that he was relevantly ‘involved in’ such a contravention. 

232               The applicant has argued that Mr Hewitson was so involved in the companies as shareholder, director and employee that he was necessarily ‘involved’ in the contraventions identified above.  However, the TPAdoes not have the effect that the corporate veil can be ignored.  This is not surprising given that the primary source of the legislative power of the Commonwealth Parliament to enact the TPA is the corporations power in s 51(xx) of the Commonwealth Constitution.  Some relevant evidentiary link between the particular breach and the acts of the particular person who is alleged to have aided, abetted etc must exist.

233               The evidence does establish that Mr Hewitson was relevantly involved in the breaches of s 53 TPA, although Mr Hoberg had the primary role.  But in all the circumstances there seems to be little point whether in the public interest or otherwise in making further orders against him and I exercise my discretion not to do so. 

Conclusion

234               In consequence declarations will be made that the first respondent breached ss 51AD, 52 or 53 TPAin the manner outlined above and that the second respondent breached s 52 TPAin the manner outlined above.  Injunctions will be made restraining the first respondent, the second respondent and Mr Hoberg from behaving in a similar manner in the future.  The application for refund of the franchise fees payable by the franchisees must be dismissed.

235               Even in relation to the first respondent this is a much more limited result than was pleaded against it.  The respondent says that the claims made by the applicant are exaggerated and unrealistic.  It says that the applicant has made an ambit claim.  There is more than a little truth in this.  As an obvious example, the pleaded allegation of fraudulent misrepresentation was not made out.  In fact the applicant had no obvious basis for making such a pleading.  In my view similar comments can be made in relation to the ambit of the claim for unconscionability; for the ambit of some of the remedies sought by the applicant and so on.

236               The respondents, on the other hand, whilst complaining of the exaggeration within the case made by the applicant, have themselves taken the unrealistic position that they are entirely innocent of each and every of the allegations made against them.  The respondents have also made claims against the various complainants called as witnesses by the applicant.  Those claims were largely irrelevant to the issues before me.  In the result the trial of this case has been unnecessarily prolonged and the material requiring consideration has been unnecessarily extensive.

237               I will hear the parties as to costs.

I certify that the preceding two hundred and thirty-seven (237) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Selway.

Associate:

Dated:              13 August 2003

Counsel for the Applicant:	R Layton QC
Solicitor for the Applicant:	Australian Government Solicitor
Counsel for the Respondent:	R Sallis
Solicitor for the Respondent:	McNamara Business and Property Law
Dates of Hearing:	April 7-11, 14-17, 22-24, 26; May 27-30; July 31 2003
Date of Judgment:	13 August 2003