FEDERAL COURT OF AUSTRALIA
SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (No 2) [2012] FCA 1116
IN THE FEDERAL COURT OF AUSTRALIA | |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT ORDERS THAT:
1. The parties are to confer and prepare draft declarations and other orders giving effect to these reasons and in accordance with paragraph 275 below.
2. The parties will be notified of the date the matter will be relisted for the making of orders giving effect to these reasons and directions.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
NEW SOUTH WALES DISTRICT REGISTRY | |
GENERAL DIVISION | NSD 1501 of 2011 |
BETWEEN: | SPAR LICENSING PTY LTD ACN 002 965 193 First Applicant SPAR AUSTRALIA LIMITED ACN 102 281 167 Second Applicant MIS QLD PTY LTD ACN 132 323 418 First Cross-Claimant CHRISTOPHER MARTIN SICHTER Second Cross-Claimant SHARON LEE WARD Third Cross-Claimant ANTHONY PAUL APLIN Fourth Cross-Claimant
|
AND: | MIS QLD PTY LTD ACN 132 323 418 First Respondent CHRISTOPHER MARTIN SICHTER Second Respondent SHARON LEE WARD Third Respondent ANTHONY PAUL APLIN Fourth Respondent SPAR LICENSING PTY LTD ACN 002 965 193 First Cross-Respondent SPAR AUSTRALIA LIMITED ACN 102 281 167 Second Cross-Respondent
|
JUDGE: | GRIFFITHS J |
DATE: | 15 OCTOBER 2012 |
PLACE: | SYDNEY |
TABLE OF CONTENTS
[1] | |
BROAD OUTLINE OF PARTIES’ CLAIM | [10] |
[16] | |
[17] | |
[20] | |
[21] | |
[22] | |
[27] | |
[28] | |
[47] | |
[55] | |
[68] | |
[70] | |
[75] | |
[88] | |
[90] | |
(a) Summary of relevant legislative requirements concerning disclosure | [92] |
[96] | |
[98] | |
[115] | |
[123] | |
[140] | |
[153] | |
[156] | |
[157] | |
(iii) Setting aside or varying the Franchise Agreement and/or Special Offer Agreement | [158] |
MISLEADING AND DECEPTIVE CONDUCT | [166] |
[174] | |
[203] | |
(c) Were the representations relied upon by the cross-claimants? | [209] |
[227] | |
[230] | |
(ii) Causal link between the representations and MIS’s loss or damage | [266] |
(e) Relief | [271] |
CONCLUSION | [275] |
REASONS FOR JUDGMENT
1 These proceedings concern a dispute about the wholesale supply of dry groceries and related services to a supermarket situated on Macleay Island in Moreton Bay, Queensland. The applicants are two companies in the SPAR group of companies. The first applicant (“SPAR Licensing”) is a wholly-owned subsidiary of the second applicant (“SPAR Australia”). I shall refer to them collectively as “SPAR”. SPAR Licensing supplies dry groceries and related services to a range of independent retail grocery outlets, primarily in Queensland and northern New South Wales, but also in some other parts of Australia. SPAR Licensing prefers to supply such products and services pursuant to franchise agreements with independent retail grocery outlets. It also supplies those products and services to some such outlets even where there is no franchising arrangement in place. In supplying such products and services on a wholesale basis, SPAR Licensing competes with Metcash Trading Limited (“Metcash”) and its subsidiaries, which include IGA Distribution Pty Ltd (“IGA”).
2 Macleay Island is a relatively small island situated in Moreton Bay, north of Brisbane. It has a population of approximately 2,500 people, many of whom are retirees or persons in the lower socio-economic demographic. As such, they are generally price sensitive in their grocery shopping. It is a popular holiday destination and its population increases during holiday periods up to around 5,000 people. Ferry services run to and from Macleay Island to Redland Bay on the mainland. The ferry trip takes approximately 20 minutes and costs about $15.00 for a return fare. It costs about $100.00 to transport a vehicle from the mainland to Macleay Island and vice versa. There is also a ferry/barge service to and from Russell Island, which is situated south of Macleay Island in Moreton Bay. The journey to Russell Island from Macleay Island takes approximately 5 to 10 minutes.
3 There are two supermarkets on Macleay Island. The first is the store which is owned and operated by the first respondent, MIS QLD Pty Ltd (“MIS”). The second, third and fourth respondents are all directors and shareholders of MIS. MIS’s store on Macleay Island is currently a SPAR branded store after the owners entered into a Special Offer Agreement with SPAR Licensing in December 2010 and a related Franchise Agreement on 1 February 2011. Prior to those agreements being executed, since August or September 2008 MIS acquired dry groceries from SPAR, but not under any franchise arrangement. The MIS store is approximately 450 square metres in size.
4 The second supermarket on Macleay Island operates under the banner “FoodWorks”. It is approximately 250 square metres in size. The FoodWorks Group comprises many independent retailers in Queensland. The Group represents an amalgamation of approximately 15 different independent banners which previously operated in Queensland. Independent supermarket retailers can become shareholders of the Group. The FoodWorks Group has what was described as a “long term” supply agreement with Metcash. The Group obtains its wholesale supply of dry groceries from Metcash but sells the products under its own banner, not that of IGA. As will emerge below, there was scant evidence in the proceedings as to the terms and conditions under which FoodWorks obtains wholesale dry groceries from Metcash.
5 There are a number of other supermarkets in the region surrounding Macleay Island. There is a “Supa IGA” supermarket of approximately 1200 square metres on Russell Island. At Redland Bay, there are another two IGA bannered stores, both in the same ownership. One is approximately 500 square metres and the other is 350-400 square metres. Woolworths, Coles and Aldi each operate supermarkets located at or near Victoria Point, which is situated on the mainland to the west of Macleay Island. There is no ferry service direct to Victoria Point from Macleay Island. Macleay Island residents who wish to visit Victoria Point do so either by bus or car after catching the ferry to Redland Bay. Residents of Macleay Island sometimes travel to Victoria Point to obtain medical attention and other professional services.
6 Neither Coles nor Woolworths operates a supermarket on Macleay Island. But Macleay Island residents are able to obtain groceries by using Woolworths’ online service, known as Woolworths Online. The nature of that service will be elaborated upon below noting, however, that the evidence on that subject was quite limited.
7 There is fierce rivalry between Metcash and SPAR to supply dry groceries and related services to independent supermarkets in Queensland. As will emerge further below, both businesses devote considerable time and resources seeking to persuade independent retailers to enter into franchising or licensing arrangements under which they obtain their wholesale supplies and related services exclusively from one rather than the other supplier.
8 The proceedings arise against the background of MIS having entered into a Franchise Agreement with SPAR Licensing on 1 February 2011, then seeking to exit that arrangement in August 2011 after entering into what was described as an “Alliance Agreement” with SPAR’s rival, Metcash/IGA. In September 2011, the SPAR parties obtained an interlocutory injunction restraining MIS from exiting the Franchise Agreement and also restraining it from purchasing goods for the conduct of its retail supermarket from any person other than SPAR (see SPAR Licensing Pty Ltd v MIS Qld Pty Ltd (No 1) [2011] FCA 1054).
9 It is convenient to now outline in broad terms the parties’ respective legal claims.
Broad outline of parties’ claims
10 By way of a further amended statement of claim filed on 10 February 2012 the SPAR parties contend that they are entitled to obtain final relief against the respondents in respect of causes of action in contract and competition law. They seek specific performance of the Special Offer Agreement and the Franchise Agreement. Additional relief is sought in respect of SPAR’s competition law claims. Those latter claims are said to be made under s 45 of the Competition and Consumer Act 2010 (Cth) (“the CC Act”).
11 There are two limbs to the applicants’ competition law claims. The first limb concerns an allegation that MIS and Metcash entered into an exclusionary provision in contravention of s 45(2)(a)(i) of the CC Act. The provision which the SPAR parties claim to be an exclusionary provision is identified and described in [35] of their further amended statement of claim (“the Provision”), which is in the following terms:
On a date presently unknown to the applicants but in or about August 2011 and by 16 August 2011, MIS made an arrangement, or arrived at an understanding, with Metcash which contained a provision that:
(a) MIS would terminate the Special Offer Agreement and the Franchise Agreement and instead acquire dry groceries and related marketing and retail support services from Metcash, in consideration of
(b) Metcash assisting MIS financially and otherwise to terminate those agreements, and guaranteeing that if MIS did so Metcash would refrain from acquiring, redeveloping and/or expanding the Foodworks (sic) Supermarket and supplying additional dry groceries and related services to it (the Provision) (original emphasis).
12 The second limb of the SPAR parties’ competition law claims is to the effect that, even if the Provision is not an exclusionary provision, it has the substantial purpose and/or the effect or likely effect of substantially lessening competition in various wholesale, retail and/or combined markets in contravention of s 45(2)(a)(ii) of the CC Act.
13 The respondents defend those claims and also bring a cross-claim, with the following two limbs. First, they claim that they are entitled to certain relief because SPAR Licensing has contravened certain provisions of the Franchising Code of Conduct (“the Franchising Code”), resulting in a contravention of s 51AD of the Trade Practices Act 1974 (Cth) (“TP Act”). In particular, they claim that SPAR Licensing failed to provide MIS with current and required financial information prior to execution of the Franchise Agreement, contrary to clauses 6B and 10 of the Franchising Code.
14 The second limb of the cross-claim alleges that SPAR Licensing contravened s 18 of the Australian Consumer Law by making certain representations to the MIS directors which induced them to enter into the Special Offer Agreement and the Franchise Agreement. Those representations are said to be misleading and deceptive because the representations were to the effect that, if MIS became a SPAR franchisee and then later wanted to convert to IGA and terminate the Franchise Agreement, MIS could do so on condition that it pay SPAR Licensing the termination and related fees set out in the Franchise Agreement. The cross-claimants allege that they relied upon those representations in executing both the agreements. They contend that the representations were misleading and deceptive because the SPAR parties are now seeking to restrain MIS from terminating those agreements, contrary to the terms of the representations.
15 The cross-claimants seek various relief, including declaratory orders, damages and orders that the Franchise Agreement and/or Special Offer Agreement be set aside or varied.
16 I shall now deal with the applicants’ claims in both contract and competition law.
17 The applicants’ claim in contract may be summarised as follows:
(a) in mid-December 2010, the respondents entered into the Special Offer Agreement with SPAR Licensing for the supply of dry groceries and related marketing and retail support services;
(b) on 1 February 2011, SPAR Licensing and MIS entered into the Franchise Agreement, with MIS as franchisee and Mr Sichter, Ms Ward and Mr Aplin as guarantors;
(c) the Franchise Agreement is for a term of 5 years commencing on 1 February 2011. It requires MIS to operate its supermarket on Macleay Island as a SPAR bannered store and to purchase SPAR’s range of dry groceries exclusively from it;
(d) neither the Special Offer Agreement or the Franchise Agreement expressly confers any rights of termination on the respondents;
(e) on 19 August 2011, the respondents purported to terminate both the Special Offer Agreement and the Franchise Agreement by a letter of resignation, thereby repudiating the agreements; and
(a) the applicants elected to affirm the agreements and to commence these proceedings.
18 In broad terms, the respondents resist the applicants’ claims in contract on several grounds. First, they contend that a term should be implied in the Franchise Agreement to the effect that MIS has a right to terminate the agreement. Secondly, they say that they had the right to terminate the agreements under the common law. Thirdly, they seek to have the Franchise Agreement and the Special Offer Agreement either declared void or varied under one or other of the two limbs of their cross-claim. Thus, they contend that:
(a) the deficiencies in the Disclosure Document provided to them around 21 July 2010 gave rise to a contravention of s 51AD of the TP Act and were of such significance and character that the Court in its discretion should set aside or vary both those agreements; and/or
(b) similar relief should also be granted on the basis that the respondents were induced to enter into those agreements by the applicants’ misleading and deceptive conduct, contrary to s 18 of the Australian Consumer Law.
19 It is convenient to now summarise the key terms of those agreements.
20 The Special Offer Agreement was executed on 14 December 2010. It is expressed to be conditional on the directors of MIS signing and finalising a formal franchise agreement before 14 January 2011. The Special Offer Agreement provides the respondents with special benefits in terms of service fees, rebates, subsidies, incentives and other pricing support in developing the Macleay Island store as a SPAR bannered store. Some of the incentives were only available for the first twelve months of the business relationship, while others were spread over the full five year term of the proposed franchise agreement.
21 As noted above, the Franchise Agreement was ultimately executed on 1 February 2011 (no material significance attaches to the fact that this occurred several weeks after the date specified in the Special Offer Agreement). The key relevant terms of the Franchise Agreement can be summarised as follows:
(a) the agreement is for a term of 5 years (clause 3.2);
(b) the parties to the Franchise Agreement are SPAR Licensing as franchisor and MIS as franchisee, with the guarantors being Mr Sichter, Mr Aplin and Ms Ward;
(c) express provision is made in clause 19 for the franchisor to terminate the agreement but no express provision is made for early termination by the respondents; and
(d) clause 20.6 deals with the subject of amounts payable on termination. Because of its significance to the proceedings, it is convenient to set out that clause in its entirety:
20.6 Amounts Payable on Termination
If this Agreement is terminated after the cooling off period and within 5 years of this date following a breach by the Franchisee, the Franchisee must within 7 days of termination pay to the Franchisor:
(a) the amount of the Termination Fee specified in Item 10 of the Schedule;
(b) the amount of any payment by the Franchisor, or reimbursement of payments made by the Franchisor to the Franchisee, for the costs of the maintenance of the Premises in compliance with clause 10.3 hereof, the estimate of which (to the extent that it is known) as made on this date is set out in Item 12 of the Schedule;
(c) the amount of the cost to the Franchisor, of the provision of retail business managers or other consultants of the Franchisor to assist the Franchisor in restocking, layout and management of the Premises, the estimate of which (to the extent that it is known) on this date is set out in Item 13 of the Schedule;
(d) any amounts as incurred or paid by way of direct payments, subsidies, costs, prizes, prize moneys, benefits or otherwise by the Franchisor for advertising promotions, programs or campaigns of the Business, the estimate of which (to the extent that it is known) on this date is set out in Item 14 of the Schedule; and
(e) the amount of the cost of the Franchisor for the supply of:
(i) computer hardware and software as supplied by the Franchisor to the new franchisee;
(ii) the provision of consultants or employees of the Franchisor for the installation of the computer hardware and software;
(iii) the training of the Franchisee as to the conduct of the Business;
(iv) uniforms for use by the Franchisee and its staff referred to in clause 9.8; and
(v) any signage supplied by the Franchisor and not paid for by the Franchisee;
the estimate of which (to the extent it is known) on this date is set out in Item 15 of the Schedule.
Consideration of applicants’ contract claim
22 Mr Wylie (who appeared with Mr Kirby for the applicants) described SPAR’s contract claim as “straightforward”. SPAR’s claim simply relies on the express terms of the Franchise Agreement. He submitted that, in the absence of any express right of termination by MIS, an implied right of termination should not be found to exist because such a right was not necessary to give business efficacy to the Franchise Agreement and would also be inconsistent with the express terms of the Franchise Agreement.
23 Although the respondents resisted the applicants’ contract claim on various grounds (see [18] above), Mr Perry SC (who appeared for the respondents) primarily focused on his clients’ cross-claim. Acceptance of either limb of that cross-claim has the potential to have the Special Offer Agreement and the Franchise Agreement either set aside or varied in a way which would stymie the applicants’ contract claim.
24 Subject to an important qualification which I will come to shortly, I accept that, prima facie, the respondents’ conduct in purporting to terminate the Franchise Agreement and convert to IGA constituted a breach of the Franchise Agreement. I accept SPAR’s submission that the Franchise Agreement did not confer any right of termination on the respondents. I also accept the submission that no implied right of termination should be read into the Franchise Agreement. In my view, such a right is not necessary to give business efficacy to the Franchise Agreement. There is nothing unusual about the notion of a franchisee being bound to honour a franchise agreement for a term of five years. Furthermore, it is difficult to reconcile implying such a right in circumstances where express provision is made in clause 20.6 of the Franchise Agreement for the franchisor alone to terminate the agreement in prescribed circumstances. Finally, as to the alleged common law right to terminate the agreements, I see no basis for any such right in the circumstances here and also note that, in any event, the point was not developed at all by Mr Perry SC in argument.
25 But that is not the end of the matter. Whether or not the applicants ultimately succeed in their contract claim depends upon the Court rejecting the respondents’ cross-claim. That is because acceptance of either limb of that cross-claim might result in the Special Offer Agreement and the Franchise Agreement being either set aside or varied by the granting of relief under s 87 of the TP Act or CC Act (which are in identical terms). In those circumstances, it is appropriate to defer further consideration of the matter until the cross-claim is considered and determined.
26 I shall now proceed to deal with the applicants’ competition law claims.
Applicants’ Competition Law Claims
27 As noted above, the applicants’ competition law case has two alterative limbs, both of which rely on s 45 of the CC Act. It is convenient to deal with those limbs in turn. Before doing so, it might be noted that the applicants’ causes of action are said to arise under the CC Act, whereas the cross-claimants rely on the TP Act for their causes of action. The difference lies in the timing of the relevant events underpinning the parties’ respective claims.
28 The first limb turns on the applicants establishing that there is an arrangement or understanding between MIS and Metcash which includes an exclusionary provision within the meaning of s 4D of the CC Act (and see ss 45(1)(a) and (2)(a)(i) of that Act). As noted above, the applicants contend that the exclusionary provision (as pleaded in [35] of the further amended statement of claim and reproduced at [11] above) is to the effect that, if MIS converted from SPAR to Metcash, Metcash would assist MIS financially to terminate its agreements with SPAR and guarantee that Metcash would refrain from acquiring, redeveloping and/or expanding the FoodWorks supermarket on Macleay Island and supplying additional dry groceries and related services to it.
29 The first limb of the applicants’ competition law claims raises the following central question: assuming that the Provision as pleaded in [35] of the further amended statement of claim otherwise constitutes an exclusionary provision within the meaning of s 4D of the CC Act, are MIS and Metcash/IGA competitors in a pleaded market? If they are not, the definition of an exclusionary provision in s 4D cannot be satisfied and the first limb of the competition claims must necessarily fail.
30 The only relevant market relied upon by the applicants for the purposes of the first limb is said to be the Macleay Island Retail Market (as pleaded in [32] of the further amended statement of claim, which was partly admitted by the respondents in [32] of the further amended defence). Mr Wylie candidly accepted (more than once) that the evidence in support of SPAR’s contention that MIS and Metcash are competitors in that market was “limited”. Mr Wylie further acknowledged that it was “a difficult case” for him to make out. He also accepted that there was no evidence before the Court which contradicted the proposition that Metcash/IGA are wholesalers, not retailers, and did not themselves operate any supermarket in Queensland at a retail level.
31 In support of this aspect of SPAR’s case, Mr Wylie drew attention in his closing address to IGA’s interest in acquiring and developing retail sites, including evidence concerning the alleged possibility of IGA redeveloping the FoodWorks supermarket on Macleay Island. Mr Wylie relied on statements made by Mr Brian West on this topic in correspondence with Mr Aplin (Mr West was IGA’s business development manager in Queensland). He also relied upon Mr Costanzo’s evidence regarding IGA’s interest and activities in acquiring and developing retail sites generally.
32 For the following reasons, I find that the applicants have failed to establish that MIS and Metcash/IGA are competitors in the Macleay Island Retail Market.
33 First, while it may be accepted that Metcash/IGA are sometimes involved in acquiring and developing retail supermarket sites, SPAR could point to no evidence which demonstrates that Metcash/IGA actually operate any supermarket at a retail level. I am satisfied that the evidence establishes that, in cases where Metcash/IGA are involved in developing or establishing a retail supermarket site, they do not operate the site themselves as retailers. Rather, it appears that their practice is to take a head lease and then enter into a sub-lease or other similar arrangement with an independent retail operator, who then operates the supermarket. In circumstances where Metcash/IGA acquire or redevelop a site, they are understandably in a strong position to require a retail supermarket operator to acquire groceries and related services from them on an exclusive basis and on condition that they use the IGA banner.
34 Secondly, in my view, the statements made by Mr West in his correspondence with Mr Aplin do not establish that IGA intended to operate a retail supermarket on Macleay Island in the sense of becoming a supplier in that market (as opposed to being a wholesale supplier to that market). It is evident that the MIS directors were concerned that if MIS converted to IGA, IGA might supply another IGA bannered supermarket or grocery store on Macleay Island in competition with MIS’s IGA bannered supermarket. To assuage those concerns, Mr West sent Mr Aplin a letter dated 10 August 2011 and then a further letter dated 19 August 2011, the effect of which was to guarantee that IGA would not open another supermarket under the IGA banner on Macleay Island (or assist, fund or facilitate others to develop or open a grocery store there) for a period of 7 years without MIS’s consent, on condition that MIS enter into what was described as an “Alliance Agreement” with IGA. There is nothing in that letter, or in any other evidence, which suggests that IGA had any interest itself in actually operating another supermarket or grocery store on Macleay Island.
35 Thirdly, Mr Wylie submitted that significance should attach to the fact that, at Mr Sichter’s request, Mr West extended the terms of IGA’s restraint beyond not merely opening an IGA bannered supermarket on Macleay Island, but so as also to include IGA not opening “a grocery store” there. Mr Wylie emphasised that the reference in Mr West’s letter dated 19 August 2011 to “a grocery store” was not limited to one with an IGA banner. I do not consider that any relevant significance should attach to Mr West’s acceptance of this suggested extension in the terms of the restraint. Mr West was not called as a witness in the proceedings but Mr Sichter gave evidence, which I accept, that his concern was to restrain IGA from setting up a rival store on Macleay Island with an IGA banner on it. He explained that he asked Mr West to extend the terms of the restraint so as to include “a grocery store” because he did not want IGA circumventing the restraint by calling a rival IGA store on Macleay Island something other than “a supermarket”. Mr Aplin had similar concerns (see further below).
36 Fourthly, Mr Wylie also relied on Mr Ruberto’s evidence of a conversation he had with Ms Ward on the morning of 19 August 2011 when she told him that MIS was going to switch to IGA (noting that 19 August 2011 is also the date of MIS’s “resignation letter”). Mr Ruberto said that Ms Ward told him that MIS had no choice but to switch from SPAR because:
IGA told them that if they did not go over to IGA, they would redevelop the FoodWorks site at Macleay Island and that would be the end of them.
37 In my view, Ms Ward’s reference to IGA redeveloping the FoodWorks site does not give rise to an inference to the effect that IGA itself intended to operate a retail supermarket on that site. The reference to “redeveloping” the site says nothing about who ultimately would operate any supermarket built on that site. I think it highly improbable that Metcash/IGA would have any interest in themselves operating a retail supermarket on Macleay Island as that would place them in competition with other nearby retail supermarkets to which they provide wholesale supplies.
38 Fifthly, Mr Wylie drew attention to an email sent by Mr West to Mr Aplin on 18 August 2011 which relevantly stated:
Hi Anthony I am coming under pressure to give the other site an answer on their proposal. Steve told me that you have signed the credit application but had not resigned. Can you please let me know as soon as you do so so I can kill off the other site.
39 Mr Wylie submitted that this email indicated that IGA had an interest in redeveloping the FoodWorks site. But even if that submission is accepted, it does not establish that IGA itself intended to operate the supermarket at a retail level. As already noted, Mr West did not give evidence in the proceedings. Both Mr Aplin and Mr Sichter were cross-examined by Mr Wylie as to their understanding of Mr West’s email. Both said that they were unaware of any interest on IGA’s part in IGA itself redeveloping the FoodWorks’ site. Mr Aplin’s understanding was that the current owner of the site had approached IGA and asked if they knew of any independent retailers who might be interested in operating a supermarket on the site if it was redeveloped. Mr Aplin was led to believe that the owner of the IGA bannered store at Redland Bay might have been interested in taking up the opportunity to become an IGA bannered supermarket operator on Macleay Island. Mr Aplin was unsurprisingly concerned that any such outcome would prejudice his interest in converting the MIS store to an IGA bannered supermarket in a few years time. Mr Sichter’s understanding was that the current owner of the site on which the FoodWorks supermarket was situated was interested in redeveloping it. He also said that he was unaware of any intention on the part of IGA to redevelop that site. I accept the evidence of Mr Aplin and Mr Sichter on these matters.
40 Sixthly, I also find that Mr Costanzo’s evidence concerning IGA’s activities in acquiring or redeveloping retail sites does not suggest that IGA had any plans to operate any supermarket on a retail basis, whether on Macleay Island or elsewhere. He gave extensive evidence regarding the rivalry between IGA and SPAR, particularly during the period between 2006 and 2010 when he worked for Metcash and before he became SPAR’s Queensland state manager. He described various tactics used by Metcash/IGA to persuade independent retailers to convert to the IGA banner. He said that this was sometimes done by spreading rumours to the effect that IGA was interested in acquiring a head lease in near proximity to an existing store aligned with a different wholesaler and then establishing an IGA bannered store operated by an independent retailer. Mr Costanzo never suggested that IGA itself would or was likely to operate such a store. There was simply no evidence establishing that Metcash/IGA had either a history or any intention of participating at a retail level in the operations of any supermarket in the manner suggested by SPAR.
41 Seventhly, in my view, SPAR’s contention that Metcash/IGA were suppliers in the Macleay Island Retail Market may be predicated on an erroneous understanding of the concept of a “market” for the purpose of the CC Act. As the High Court observed in NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 at [68], the term “market” in that Act is not “precise or formally exact”, and there can be “overlapping markets with blurred limits and disagreements between bona fide and reasonable experts about their definition”.
42 Section 4E of that Act does not purport to provide an exhaustive definition of the term “market”. Rather, it merely states that a market includes goods and services substitutable for, or otherwise competitive with, the goods or services under consideration.
43 The guidance provided in the caselaw as to meaning of “market” in this context, includes the following observations of French J (as he then was) in Singapore Airlines Limited v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 174:
In competition law it has a descriptive and a purposive role. It involves fact-finding together with evaluative and purposive selection. In any given application it describes a range of economic activities defined by reference to particular economic functions (eg manufacturing, wholesale or retail sales), the class or classes of products, be they goods or services, which are the subject of those activities and the geographic area within which those activities occur. In its statutory setting the market designation imposes, on the activities which it encompasses, limits set by the law for the protection of competition. It involves a choice of the relevant range of activity by reference to economic and commercial realities and the policy of the statute. To the extent that it must serve statutory policy, the identification will be evaluative and purposive as well as descriptive.
44 In Australian Gas Light Company v Australian Competition and Consumer Commission (2003) 137 FCR 317 (“AGL”) at [378], French J made the following further relevant observations:
The concept of market describes, in a metaphorical way, an area or space of economic activity whose dimensions are function, product and geography. A market may be defined functionally by reference to wholesale or retail activities or a combination of both.
45 The Macleay Island Retail Market, as pleaded and defined by the SPAR parties, is a market for the retail supply of dry grocery products and related services on Macleay Island. SPAR’s contention that the suppliers in that market include both MIS and Metcash cannot be accepted on the evidence presented in these proceedings. MIS is undoubtedly a retail supplier, whereas Metcash/IGA are wholesaler suppliers.
46 Accordingly, for these reasons, I find that SPAR has failed to establish that MIS and Metcash/IGA are competitors in the Macleay Island Retail Market. The evidence overwhelmingly demonstrates that MIS is a supplier in that retail market, whereas Metcash/IGA are suppliers in one or other wholesale markets. Of course, as wholesalers, Metcash/IGA have a keen interest in ensuring that IGA bannered stores operate successfully in retail markets because such success is beneficial to their wholesale business. But such an interest falls well short of establishing that Metcash/IGA are themselves actual or potential suppliers in the Macleay Island Retail Market as contended by the SPAR parties. Thus the first limb of the applicants’ competition law claims is rejected.
(b) Substantial lessening of competition
47 The second limb of the applicants’ competition law claims is directed to s 45(2)(a)(ii) of the CC Act, which is in the following terms:
(2) A corporation shall not:
(a) make a contract or arrangement, or arrive at an understanding, if:
(i) …; or
(ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition.
48 In broad terms, SPAR argues that, even if the Provision pleaded in [35] of the further amended statement of claim is not an “exclusionary provision”, it is a provision which has the purpose or likely effect of substantially lessening competition in one or more pleaded markets. Thus SPAR raises both a purpose and a likely effect case under this limb. The substantial lessening of competition is said to relate to SPAR being removed as a wholesale supplier of dry groceries and related services on Macleay Island and in the Moreton Bay region. That is said to be both a substantial purpose and likely effect of the Provision. In addition, SPAR argues that the Provision has the purpose or likely effect of substantially lessening competition by removing Metcash/IGA as a potential competitor in the Macleay Island Retail Market as pleaded by it.
49 SPAR’s s 45(2)(a)(ii) case does not depend on SPAR establishing that MIS and Metcash are competitors. Rather, it substantially (but not exclusively) focuses on the purpose or likely effect of the Provision on competition between SPAR and Metcash.
50 SPAR pleads no less than seven alternative markets for this aspect of its case. Those markets are defined and further described in the further amended statement of claim as:
(a) the Macleay Island Wholesale Market;
(b) the Moreton Bay Wholesale Market;
(c) the Queensland Wholesale Market;
(d) the Macleay Island Retail Market;
(e) the Moreton Bay Retail Market;
(f) the Macleay Island Independent Market (representing the combined wholesale and retail supply of dry grocery products and related services on Macleay Island); and
(g) the Moreton Bay Independent Market (representing the combined wholesale and retail supply of dry grocery products and related services in the Moreton Bay region).
51 The respondents admit in part the existence of the Macleay Island Retail Market as defined by the applicants, but deny the existence of all the other markets pleaded by the applicants. In particular, the respondents admit that MIS, Woolworths Online and the operator of the FoodWorks supermarket on Macleay Island are all suppliers in the retail market for the supply of dry grocery products and related services on Macleay Island, but deny that SPAR Australia, SPAR Licensing or Metcash are suppliers within that retail market. Mr Aplin also gave evidence, which I accept, that the IGA bannered supermarket on nearby Russell Island competes with MIS and is a supplier in the Macleay Island Retail Market. He said that in 2010 Macleay Island residents who travelled by ferry/barge to Russell Island and shopped at the IGA store there received a full refund of their travel costs if they purchased groceries over a particular amount. Mr Aplin indicated that he took into account the pricing of the Russell Island store in setting MIS’s prices. In my view, there is insufficient detailed and relevant evidence to extend the suppliers in that retail market so as to include Coles, Woolworths and Aldi by reference to their supermarkets in or near Victoria Point. I take the same view in respect of the IGA supermarkets at Redland Bay.
52 SPAR relies on limited documentary and lay evidence in seeking to establish its various pleaded markets. No relevant expert evidence was adduced by any party.
53 This limb of SPAR’s competition law claims raises the following issues for determination:
(a) apart from the Macleay Island Retail Market (the existence of which is admitted in part by the respondents), has SPAR established any of its other pleaded markets;
(b) has SPAR established that the Provision has the purpose of substantially lessening competition in any market established by it; and
(c) alternatively, has SPAR established that the Provision has the likely effect of substantially lessening competition in any such market?
54 Before addressing those issues, it is convenient to say a little more about the following two matters:
(a) relevant principles relating to market definition and their application to the evidence here; and
(b) limitations in the evidence relied upon by SPAR in support of its competition law claims and how SPAR presented this aspect of its case.
55 As Yates J observed in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 at [245], the seminal expression of “the market” for the purposes of Australian competition law is to be found in the following observations of the Trade Practices Tribunal in Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 25 FLR 169 at 190:
We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them. (If there is no close competition there is of course a monopolistic market.) Within the bounds of a market there is substitution-substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm’s product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives.
It is the possibilities of such substitution which set the limits upon a firm’s ability to “give less and charge more”. Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to “give less and charge more” would there be, to put the matter colloquially, much of a reaction? And if so, from whom? In the language of economics the question is this: From which products and which activities could we expect a relatively high demand or supply response to price change, i.e. a relatively high cross-elasticity of demand or cross-elasticity of supply?
56 Markets can be defined in terms of product, function and geography (see AGL at [378] and the helpful analysis by Emmett J in Australian Competition and Consumer Commission v Metcash Trading Limited (2011) 282 ALR 464 at [127]-[129], [150]-[152] and [174]-[208], which analysis was not disturbed on appeal – see (2011) 198 FCR 297). As to the product dimension, each of SPAR’s pleaded markets identifies the relevant items as “dry grocery products and related services”. The dry grocery products are particularised as groceries such as breakfast cereal, canned food, biscuits, flour, tea, coffee, soft drinks, nappies, cleaning products, personal hygiene products, packaged not daily fresh delicatessen and dairy items, and frozen goods. Such products are said to be distinct from and not substitutable with perishable products, including fresh fruit and vegetables, and daily fresh dairy, meat, delicatessen or bakery items. In the case of the pleaded wholesale markets, the “related services” are identified as “related marketing and retail support services” and then further particularised as “a range of related branding, promotional pricing and advertising, retail systems and training services”. In the case of SPAR’s pleaded retail markets, the “related services” are described as “branding, promotional pricing and advertising services”.
57 SPAR supplies approximately 12,000 to 13,000 dry grocery products, while Metcash/IGA supplies approximately 17,000 such products. Mr Carson (who was SPAR’s chief executive officer from 2004 until 31 January 2011) gave evidence that SPAR’s supply of dry grocery products constitutes about 50 per cent of the products that a supermarket ordinarily sells. Other products which are supplied on a wholesale basis to supermarkets include such items as fresh fruit and vegetables, meat, delicatessen items and other perishable goods, none of which is included in SPAR’s pleaded markets. The pleaded markets are all confined to dry grocery products and related services. Mr Costanzo also gave evidence that IGA supplies a similar, but broader range of dry grocery products and similar related services. His evidence was that both SPAR and IGA supply a range of generic products. He said that SPAR provides approximately 450 generic lines (under the “Fabulous” brand) while Metcash provides approximately 1,000 generic lines (under the “Black & Gold” brand). It is not clear from the evidence whether all those generic lines are dry grocery products or also include goods which are not included in SPAR’s pleaded markets.
58 Insofar as the “related marketing and retail support services” are concerned, the evidence, such as it is, indicates that those services include marketing support, merchandising support and store operational support. Mr Costanzo gave evidence that SPAR had an IT department, which assists SPAR stores by, for example, maintaining retail and cost price files.
59 Turning now to the functional dimension of SPAR’s pleaded markets, they include a number of alternative retail markets, wholesale markets as well as combined markets. It is now well established that the appropriateness of any particular functional level depends upon the particular facts of a given case. After reviewing the relevant authorities in Metcash Trading, Yates J (with whom Finn J agreed) concluded at [266]:
These authorities show that, as a matter of principle, there is no reason why, for competition law purposes, a market cannot be defined by reference to multiple functional levels. They illustrate that it might be appropriate to do so where downstream activities function to constrain upstream behaviour. Whether that is so depends on the facts presented for consideration and the evaluation of those facts by the relevant decision-maker (emphasis added).
60 The importance of the particular evidence which is adduced in support of a contention that a market should be defined by reference to multiple functional levels, e.g. both wholesale and retail levels, is vividly illustrated by the different conclusions arrived at regarding the supermarket industry in cases such as Davids Holdings Pty Limited v Attorney-General (Cth) (1994) 49 FCR 211 and the Metcash Trading litigation. There seemed to be an assumption in part of SPAR’s competition law case that, because of the markets found to exist in the Metcash Trading litigation, the same markets should be found here. Any such assumption must be rejected. SPAR carries the onus of establishing the existence of its pleaded markets by reference to the evidence adduced in these proceedings.
61 Turning now to consider the geographic dimension of market definition, it is to be noted that SPAR’s alternative pleaded markets operate at three different geographic levels, namely a narrow geographic market limited to Macleay Island, a broader regional market relating to Moreton Bay and, finally, a very broad market which is expressed in terms of the state of Queensland as a whole.
62 Putting to one side for the moment SPAR’s pleaded Macleay Island Retail Market (which was partly admitted by the respondents), I consider that SPAR adduced insufficient evidence to support many of its other pleaded markets. As noted above, some evidence was adduced concerning the wholesale activities of both SPAR and Metcash at a state level. It is evident that SPAR’s wholesaling operations are conducted from its warehouse located at Acacia Ridge, at least insofar as its dry grocery products are concerned. SPAR operates “cross-docking” facilities in Sydney and Canberra, whereby major loads are broken down onto smaller trucks. SPAR has a separate warehouse outside Brisbane from which its frozen and dairy products are distributed. That warehouse has some relevance to the proceedings insofar as it relates to frozen goods (which fall within SPAR’s definition of “dry groceries”), but it has no relevance insofar as its operations relate to perishable groceries, such as dairy products. It is significant to note, however, that these two warehouses are located in Queensland and, although they are used to supply wholesale dry groceries to supermarkets in both Queensland and elsewhere, they provide some support for the existence of a Queensland Wholesale Market. The limited evidence also suggests that Metcash/IGA’s wholesaling operations are conducted on a state by state basis, but that Metcash has a broader national presence.
63 The evidence concerning market share was limited to Mr Costanzo’s estimate that Metcash/IGA supplied approximately 95 per cent of the wholesale market of dry groceries in Queensland, and SPAR supplied approximately 5 per cent. Mr Costanzo said that those were “rough round figures”. Mr Carson gave evidence that, in 2010, SPAR supplied approximately 150 SPAR branded stores and another 150 unbranded stores. He estimated that approximately 70 per cent of the stores supplied by SPAR were in Queensland.
64 Mr Wylie placed particular emphasis on the relative significance of the MIS store to SPAR’s wholesale business. The MIS store is the only SPAR store in the Moreton Bay region. He said that the store was SPAR’s third biggest wholesale customer in the south-eastern part of Queensland. A spreadsheet produced by SPAR (which was used to brief their expert, Mr Haley), revealed that, as at March 2012, the MIS Macleay Island supermarket represented 1.3 per cent of SPAR’s total wholesale sales (including Queensland and beyond). The spreadsheet apparently recorded information concerning SPAR’s total wholesale revenue for the first three months of 2012. The figures included new customers such as the Supabarn chain of supermarkets in NSW and the ACT who, according to Mr Carson, started to acquire wholesale groceries from SPAR after January 2011 when he left SPAR. The figures were not confined to Queensland alone, nor were they confined to SPAR’s dry grocery products. If some allowance is made for those matters, it would appear that the MIS Macleay Island supermarket represented no more than one per cent of SPAR’s wholesale supply of dry groceries in Queensland.
65 With some hesitation, I am prepared to accept that the evidence pointed to by SPAR is sufficient to support the existence of a State-wide wholesale market for the supply of dry groceries and related services in which SPAR and Metcash/IGA are suppliers and independent grocery stores are acquirers.
66 But, for the following reasons, I find that SPAR has not adduced sufficient evidence to establish any of its other pleaded wholesale or combined markets. In particular:
(a) I consider that SPAR has not established the existence of the Macleay Island Retail Market as pleaded by it. In particular, having regard to Mr Aplin’s evidence, the suppliers in that retail market are MIS, the operator of the FoodWorks supermarket, the IGA at Russell Island and Woolworths Online. For convenience, however, I shall continue to refer to this market as the Macleay Island Retail Market;
(b) SPAR’s evidence is inadequate to establish the existence of the Moreton Bay Retail Market. In particular, I reject SPAR’s contention that the suppliers in such a market include SPAR Australia, SPAR Licensing and Metcash. For reasons given above, I consider that those businesses are not suppliers in any retail market, but rather are wholesalers;
(c) I consider that SPAR has failed to establish the existence of either the Macleay Island Wholesale Market or Moreton Bay Wholesale Market as defined in the further amended statement of claim. In my view, the evidence strongly suggests and I find that the wholesale businesses of both SPAR and Metcash are operated on a state by state basis. It may well be that there are “sub-markets” within that state-based wholesale market, but I respectfully agree with Emmett J’s observations at first instance in Metcash Trading at [178] and [179] to the effect that the concept of a sub-market has no explicit statutory role and that, while it may have some attraction as “a tool of analysis”, it cannot displace the statutory significance of identifying a market; and
(d) as noted above, there is insufficient evidence in these proceedings to warrant any finding in SPAR’s favour as to the existence of either the Macleay Island Independent Market or the Moreton Bay Independent Market. Any such combined retail and wholesale markets would have to take into account participants additional to those identified by SPAR. In particular, such an analysis would have to take into account the activities of the vertically independent supermarket chains, such as Coles, Woolworths and Aldi. There is a conspicuous lack of detailed evidence relating to those activities.
67 I shall now say something more about the limitations in SPAR’s market evidence.
SPAR’s limited evidence on its competition law case
68 At the commencement of Mr Wylie’s oral closing address, the Court made plain that it was having difficulty understanding how SPAR put and made good its competition law case. Mr Wylie responded by acknowledging several times that SPAR’s evidence was limited. The Court emphasised that SPAR needed to address it on how it said that the evidence supported its competition law claims. As matters transpired, the Court was not taken in any detail to the evidence, even with its limitations. Although SPAR did not abandon any of its pleaded markets, Mr Wylie’s closing address largely focused on SPAR’s pleaded Macleay Island Wholesale Market and Macleay Island Retail Market.
69 The evidentiary gaps in SPAR’s competition law case was particularly stark in respect of SPAR’s pleaded combined wholesale and retail markets, which focus on Macleay Island specifically and the Moreton Bay region more generally. The concept of a combined wholesale and retail market in either of those geographic areas necessarily raised for consideration the nature and extent of the activities of the major vertically integrated supermarket chains in those areas, such as Woolworths, Coles and Aldi. But there was scant evidence about their operations or market shares. It was common ground that none of Woolworths, Coles or Aldi operates a supermarket on Macleay Island but, as noted above, SPAR ultimately accepted that residents of Macleay Island could buy dry groceries (and presumably other products) using the Woolworths Online service. Apart from Mr Aplin’s very basic description of that service (see [77] below), which indicated that it was a competitive retail service to that offered by MIS, there was no detailed evidence providing the foundation for any meaningful assessment of the significance of that service in the context of SPAR’s pleaded retail and combined markets relating specifically to Macleay Island. In those circumstances, while it was ultimately accepted by the SPAR parties that Woolworths Online was a supplier in the Macleay Island Retail Market, in the absence of more detailed evidence about that service, the Court was unable to conduct a meaningful assessment of SPAR’s claims to the effect that the Provision had a purpose or likely effect of substantially lessening competition in the Macleay Island Retail Market (or, indeed, the Moreton Bay Retail Market). Mr Wylie correctly accepted that the SPAR parties carried the onus of establishing these matters.
70 There was no material contest between the parties as to the relevant legal principles applying to the “purpose” aspect of s 45(2)(a)(ii). Those principles are conveniently set out in the joint judgment of Dowsett and Lander JJ in Seven Network Ltd v News Ltd (2009) 182 FCR 160 at [850]-[901] and may be summarised as follows:
the purpose of a provision is to be ascertained by reference to the subjective purpose of those who sought and caused the inclusion of the provision in the contract, arrangement or understanding ([851]);
purpose is not the same as motive, nor is it the same as knowledge ([852]-[853]);
it is not necessary that the proscribed purpose be the only purpose, but it is necessary that the proscribed purpose be a substantial purpose ([854]);
the notion of “substantial” is used in the sense of considerable or large or real and not imaginary ([855] and [858]);
the purpose of a particular provision is to be ascertained by determining the end sought to be achieved by the parties including, in particular, whether a substantial purpose was to substantially lessen competition ([861]);
merely because a provision is included for a proscribed purpose does not necessarily mean that it will have the likely effect of substantially lessening competition ([867]); and
it is enough that one party in a multi-party contract had the purpose, in including a provision of substantially lessening competition in a relevant market, provided that such a purpose was a substantial purpose for such inclusion ([871]).
71 Mr Wylie summarised SPAR’s case under s 45(2)(a)(ii) that the Provision had the purpose of substantially lessening competition as follows:
… the applicant’s (sic) case is that here there was a real chance of Metcash competing in the Macleay Island retail market if the understanding had not been arrived (sic) and the provision made, and a substantial purpose and the likely effect of the provision was to limit the retail supply of Metcash dry groceries to Macleay Island.
72 Mr Wylie then made clear that there was a second element to this part of SPAR’s case when he made the following submission:
… the second element of the provision is that it terminated SPAR (sic) wholesale supply to Macleay Island, and for the reasons I’ve indicated before, substantially lessened competition between SPAR and Metcash in the Macleay Island and broader – and any broader wholesale (sic) that your Honour found.
73 In my view, SPAR has failed to discharge its onus of establishing that the Provision was included for either of the alleged proscribed purposes. As to the claim that the purpose was to limit the retail supply of Metcash dry groceries to Macleay Island, it is difficult to see how the Provision had that purpose. When the Provision was agreed between MIS and Metcash/IGA, dry groceries were being supplied to the FoodWorks supermarket on the Island via the long term supply agreement with the FoodWorks Group. No evidence was adduced to suggest that that arrangement would change as a result of the Provision. The Provision was made in the context of MIS agreeing to become an IGA bannered store. Consequently, if that arrangement is implemented, Metcash/IGA would directly or indirectly provide dry groceries to both the stores on Macleay Island, one of which would be an IGA bannered store and the other a FoodWorks branded store. In those circumstances, it is difficult to see any basis in SPAR’s contention that a substantial purpose of the Provision was to limit the retail supply of Metcash dry groceries on Macleay Island.
74 As to the second purpose advanced by the SPAR parties, even if it be accepted for the sake of argument that a substantial purpose of the Provision was to terminate SPAR’s wholesale supply to Macleay Island, SPAR has failed to establish that any such purpose involved a substantially lessening of competition in any of its pleaded wholesale or combined markets. For reasons separately expressed, I do not accept that SPAR has established the existence of any wholesale market for the supply of dry groceries and related services other than on a State-wide basis. In my opinion, the removal of SPAR as a wholesale supplier on Macleay Island in circumstances where that supply constitutes no more than one per cent of SPAR’s total sales of dry groceries on a wholesale basis in Queensland falls well short of satisfying the requirement that any proscribed purpose in the Provision substantially lessens competition in the Queensland Wholesale Market.
75 Again, there was no real contest between the parties as to the relevant principles governing this aspect of SPAR’s s 45 case (noting that, in argument, SPAR did not develop its “effect case”, and concentrated on its “likely effect case”). The relevant legal principles may be summarised as follows:
the term “likely” means “a real chance” (see Seven Network at [748]-[751]);
the phrase “substantially lessening competition” is evaluative and, even though the term is imprecise and ambiguous, it is probably better to avoid substituting other adverbs for the term “substantially”. It certainly means something more than trivial, minimal or nominal and probably has a meaning closer to that denoted by the word “considerably” (see Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1982) 62 FLR 437 at 444 per Lockhart J and Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236 at [124]-[125]);
the central concept of “a substantial lessening in competition” necessarily requires careful consideration to the relevant market in which that competition occurs; and
as Wilcox J observed in Eastern Express Pty Limited v General Newspapers Pty Limited (1991) 30 FCR 385 at 420-421;
… every commercial contract lessens competition to some degree. Each party is taken out of the market to the extent of its commitment. The parties, being bound to each other, are unable to buy from, or sell to, others the goods or services the subject of the contract. To that extent, they are inhibited in their ability to compete with others for purchases or sales. But those restrictions are fundamental to contract law; law which the Trade Practices Act was designed to supplement, not to supplant. No doubt this is why the word “substantially” appears in pars (a)(ii) and (b)(ii). If those paragraphs had referred merely to contracts etc which lessen competition, they would have achieved too much. The introduction of “substantially”, a word of degree, enables the court to make a judgment about the degree of anti-competitive effect of a particular contract, having regard to its scope and purpose;
76 For present purposes, it may be accepted that, in assessing whether a provision in a contract or other arrangement has a substantial purpose, or likely effect, of substantially lessening competition, it may be relevant to consider whether the provision operates so as to “nip in the bud” actual or potential competition in the relevant market (see Rural Press at [129]).
77 As best I understand Mr Wylie’s submissions, the essential elements of SPAR’s likely effect case are as follows. First, Mr Wylie emphasised that there was, to some extent, an agreed retail market on Macleay Island for the supply of dry groceries and related services and that it was common ground that both MIS and the FoodWorks store were suppliers in that market. Mr Wylie also ultimately accepted that Woolworths Online is a supplier in that market. That concession was presumably based upon Mr Aplin’s evidence, which described the broad features of that service. Residents on Macleay Island are able to order groceries and refrigerated items online from Woolworths. The groceries are delivered by truck and ferry to the Island’s residents three times a week. A delivery fee is payable, but Mr Aplin said that the fee fluctuated according to the basket spend, with all delivery fees being waived if a customer bought more than $200.00 worth of groceries or if the customer was willing to wait for an end of week delivery. Mr Aplin said that he modified MIS’s pricing by reference to Woolworths Online’s prices, while also noting that Woolworths had a bigger volume supply discount potential because of its size. No evidence was placed before the Court indicating Woolworths Online’s retail market share on Macleay Island, but Mr Aplin identified that service as one which competed with MIS’s retail operations.
78 Secondly, Mr Wylie accepted that the terms and conditions on which dry groceries were supplied to the FoodWorks store on Macleay Island were not in evidence. He acknowledged the difficulties which that presented for his case. He pointed to Mr Costanzo’s limited evidence on that topic, which was to the effect that the FoodWorks Group, rather than individual FoodWorks stores, had “a long term supply agreement with IGA”.
79 Thirdly, Mr Wylie submitted that, an assessment of whether the removal of SPAR’s wholesale supplies from Macleay Island was likely to have the effect of substantially lessening competition, had to be judged not only quantitatively, but also qualitatively. As noted above in [64], he contended that the MIS store was of particular significance to SPAR because it was its third best wholesale customer in the south-eastern region of Queensland, an area which was dominated by IGA stores. There is no other SPAR branded store in the Moreton Bay region. He submitted that if SPAR’s wholesale supply on Macleay Island ceased, there would be no constraints on Metcash/IGA’s conduct or pricing in the wholesale markets as pleaded. In support of that submission, he relied on the decisions of the Full Court of this Court and of the High Court in Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 213 and (2003) 216 CLR 53 respectively.
80 Fourthly, on the issue of substantial lessening of competition in the Macleay Island Retail Market, Mr Wylie submitted that the likely effect of the Provision was to limit the retail supply of Metcash dry groceries to Macleay Island, while acknowledging again that SPAR’s evidence on this particular matter was limited.
81 Fifthly, Mr Wylie submitted that, if the Court did not accept the separate existence of the retail markets and wholesale markets as pleaded, SPAR’s alternative claims were that there was:
(a) a combined market for the wholesale supply of dry grocery products and related services to independent supermarkets on Macleay Island or, alternatively, in the region; and/or
(b) a combined market for the retail supply of dry grocery products and related services by independent supermarkets on Macleay Island or, alternatively, in the region.
In support of these propositions, he relied on the Full Court’s decision in Metcash Trading and the decision of the Trade Practices Tribunal in Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225.
82 Having regard to my findings above concerning the relevant markets established by the evidence, I need only consider the Macleay Island Retail Market (as redefined above in [66(a)]) and the Queensland Wholesale Market.
83 The first point to make about the Macleay Island Retail Market is that, even if it is accepted that the Provision has the effect of removing SPAR as a wholesale supplier on Macleay Island, with the consequence that SPAR supplied dry groceries are no longer available to consumers on Macleay Island, that does not mean that the evidence demonstrates that there is a likelihood (in the sense of a real chance) of competition in the Macleay Island Retail Market being substantially lessened. Consumers would still be able to choose between buying their dry groceries from the MIS supermarket operating under the IGA banner, the FoodWorks supermarket acquiring dry groceries indirectly from IGA (but trading under the FoodWorks banner), Woolworths Online, as well as the Supa IGA on Russell Island. In the absence of any evidence indicating the respective market shares of those retail sources serving Macleay Island, I find that there is insufficient evidence to support a finding in SPAR’s favour that the Provision is likely to have the effect of substantially lessening competition in that particular market.
84 Secondly, even if Woolworths Online is put to one side, I do not think that there is room for any assumption that competition at a retail level is likely to be substantially lessened simply because, with SPAR removed as a wholesale supplier, Metcash/IGA will provide dry groceries on a wholesale basis on Macleay Island to MIS and to the FoodWorks store (via the long term supply agreement with the FoodWorks Group), as well as to the Supa IGA on Russell Island. Mr Aplin’s evidence was to the effect that there were significant pricing advantages in being an IGA bannered store in terms of promotional pricing opportunities and better case deals, which differentiate an IGA bannered store from the FoodWorks store on Macleay Island. That was one of the reasons he gave for including the Russell Island IGA bannered store among his competitors. He said that that store was able to offer attractive pricing for Macleay Island’s price sensitive residents, when compared with his store and the FoodWorks store on Macleay Island. Mr Aplin explained that it was his understanding that promotional programming was undertaken by the FoodWorks Group itself notwithstanding that it acquired dry groceries from Metcash/IGA, whereas Metcash/IGA took responsibility for promotional programming for their IGA bannered stores and were able to offer more attractive promotional pricing for those stores.
85 Thirdly, I do not think that the difficulties presented by SPAR’s limited evidence are overcome by resort to the concept of the Provision operating to “nip actual or potential competition in the bud”. Rural Press was concerned with quite different facts which involved a market previously and subsequently dominated by a single player. That is not the case here, when account is taken of the competition provided by Woolworths Online, as well as the differences between the supply of IGA dry groceries to the FoodWorks Group as opposed to IGA bannered stores, as described by Mr Aplin.
86 As to SPAR’s likely effect case as it relates to the Queensland Wholesale Market, having regard to the finding above that SPAR’s supply of wholesale dry groceries to the MIS store represents no more than one per cent of its total wholesale revenue for Queensland, I reject this aspect of the second limb of the applicants’ competition law claims that the Provision has the likely effect of substantially lessening competition in that market.
87 For these reasons, therefore, SPAR’s competition law claims must fail.
88 There are two limbs to the cross-claim:
(a) an allegation that SPAR Licensing contravened the Franchising Code of Conduct and, thereby, contravened s 51AD of the TP Act; and
(b) an allegation of misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law on the part of SPAR Licensing, which it is claimed was material to the respondents’ decision to enter into the Special Offer Agreement and the Franchising Agreement.
89 I shall deal with each of those cross-claims in turn.
BREACH OF THE FRANCHISING CODE
90 The first limb of the cross-claim concerns the allegation that SPAR Licensing contravened s 51AD of the TP Act. The contravention was said to arise because, contrary to clauses 6B and 10 of the Franchising Code, the document provided by SPAR Licensing to MIS on or about 21 July 2010 was not a disclosure document within the meaning of the relevant provisions of the Franchising Code. That was because it is alleged that the document did not contain certain required financial details and information concerning SPAR Licensing, the proposed franchisor.
91 It is convenient to deal with this limb of the cross-claim under the following headings:
(a) summary of relevant legislative requirements concerning disclosure;
(b) factual findings concerning the Disclosure Document;
(c) summary of the parties’ respective arguments;
(d) consideration; and
(e) relief.
(a) Summary of relevant legislative requirements concerning disclosure
92 The first question is whether this aspect of the cross-claim attracts the relevant provisions of the TP Act or those in the CC Act. As noted above, the cross-claimants plead the matter as a breach of s 51AD of the TP Act but, in their defence to the cross-claim, the cross-respondents plead that s 51AD of the CC Act is the correct provision and not s 51AD of the TP Act. This issue was not further developed by Mr Wylie in his argument but, as Mr Perry SC pointed out, the cross-respondents’ pleading seems to be predicated on the fact that the Franchise Agreement was entered into on 1 February 2011, i.e. after the commencement of the CC Act on 1 January 2011. Mr Perry SC submitted that the cross-respondents’ position was erroneous having regard to the transitional provisions in Schedule 7 of the Trade Practices Amendment (Australian Consumer Law) Act (No. 2) 2010 (Cth). Item 6 of Schedule 7 of that Act has the effect that the TP Act as in force immediately before the commencement of the Item (i.e. 1 January 2011) continues to apply after that date in respect of acts or omissions that occurred before the commencement date. Mr Perry SC further submitted that the act or omission which was the subject of the alleged contravention was not the execution of the Franchising Agreement in February 2011 but, rather, the cross-respondents’ conduct in providing the allegedly non-compliant Disclosure Document on or about 21 July 2010.
93 Since s 51AD of the TP Act and s 51AD of the CC Act are in identical terms, no particular legal significance appears to attach to the question as to which Act applies. For completeness, however, I should record that I agree with Mr Perry SC’s analysis as outlined above, with the consequence that the TP Act continues to be relevant in these circumstances. Accordingly, and on that basis, I shall now outline the relevant legislative provisions.
94 Section 51AD of the TP Act provides as follows:
A corporation must not, in trade or commerce, contravene an applicable industry code.
95 Section 51AE of the TP Act empowers the making of regulations which:
(a) prescribe an industry code for the purposes of Part IVB; and
(b) declare an industry code to be a mandatory industry code or a voluntary industry code.
(i) The Franchising Regulations
96 The Franchising Code is set out in the Trade Practices (Industry Codes-Franchising) Regulations 1998 (“the Franchising Regulations”). Regulation 3 of the Franchising Regulations provides that, for the purposes of s 51AE of the TP Act, the code set out in the Schedule to the Franchising Regulations is both prescribed and is a mandatory industry code. The code set out in the Schedule is entitled the “Franchising Code of Conduct”.
97 It should also be noted at this point that the Franchising Regulations were amended in 2010 by the Trade Practices (Industry Codes-Franchising) Amendment Regulations 2010 (No. 1), which amendments took effect on 1 July 2010. The relevant provisions of the Franchising Regulations and Franchising Code which were in force on 1 July 2010 apply to this limb of the cross-claim. I shall now outline those relevant provisions.
98 Part 2 of the Franchising Code is concerned with the disclosure of information by a franchisor to a “prospective franchisee” and a “franchisee” (noting that both those terms are defined in clause 3 of the Franchising Code, a matter to which I will return below). Clause 6, which appears in Part 2, relevantly provides:
6 Franchisor must maintain a disclosure document
(1) A franchisor must, before entering into a franchise agreement, and within 4 months after the end of each financial year after entering into a franchise agreement, create a document (a disclosure document) for the franchise in accordance with this Division.
(2) A disclosure document:
(a) must be:
(i) if the franchised business has an expected annual turnover at any time during the term of the franchise agreement of $50,000 or more – in accordance with Annexure 1; or
…
99 Two relevant features of that provision should be noted:
(a) a franchisor is obliged to create a disclosure document before entering into a franchise agreement; and
(b) if the relevant franchise business has an expected annual turnover of $50,000 or more, the disclosure document must conform with the requirements of Annexure 1 to the Schedule to the Franchising Regulations. Annexure 1 constitutes the long form of the mandatory disclosure document where the expected turnover exceeds $50,000, while Annexure 2 constitutes the short form of the mandatory disclosure document where the expected annual turnover is less than $50,000.
100 The purposes of a disclosure document are set out in clause 6A, which is in the following terms (emphasising for the purpose of these proceedings the reference to a “prospective franchisee”):
6A Purpose of disclosure document
The purposes of a disclosure document are:
(a) to give to a prospective franchisee, or a franchisee proposing to enter into, renew, or extend the scope of a franchise agreement, information from the franchisor to help the franchisee to make a reasonably informed decision about the franchise; and
(b) to give a franchisee current information from the franchisor that is material to the running of the franchise business.
101 There are two particular features to note about this provision:
(a) although the introductory words to clause 6A(a) refer to both a “prospective franchisee” and a “franchisee”, reference is made later in the sub-clause to helping “the franchisee to make a reasonably informed decision about the franchise”. For reasons given below, however, I consider that, on its proper construction, the second reference to the “franchisee” in clause 6A(a) encompasses both a prospective and an existing franchisee; and
(b) for reasons also given below, I consider that, on its proper construction, the purpose set out in clause 6A(b) of giving a “franchisee” current information from the franchisor that is material to the running of the franchise business applies to both a prospective franchisee and an existing franchisee.
102 The reasons for the views I have expressed above are as follows. First, as noted above, the terms “franchisee” and “prospective franchisee” are both defined terms in clause 3. Those definitions are respectively as follows:
franchisee includes the following:
(a) a person to whom a franchise is granted;
(b) a person who otherwise participates in a franchise as a franchisee;
(c) a subfranchisor in its relationship with a franchisor; and
(d) a subfranchisee in its relationship with a subfranchisor.
prospective franchisee means a person who deals with a franchisor for the right to be granted a franchisee.
103 It is to be noted that the definition of “franchisee” is, in its own terms, inclusive, whereas the definition of “prospective franchisee” is exhaustive (as is reflected in the use of the term “means”).
104 Secondly, the evident object and purpose of clause 6A(a) would in large measure be defeated if the second reference to “franchisee” in that provision was read as being limited to one of the four categories of persons identified in the non-exhaustive definition of “franchisee” in clause 3. In my view it is plain from the terms of clause 6A(a) that the intention of helping persons make a reasonably informed decision about a franchise applies equally to both a prospective franchisee and an existing franchisee. Consequently, the reference to a “franchisee” in that sub-clause should be read as also including a “prospective franchisee”.
105 Thirdly, although there is no express reference to a “prospective franchisee” in clause 6A(b), in my view the clear object of that provision is to give both a prospective franchisee and an existing franchisee current information from the franchisor that is material to the running of the relevant franchise business. That is consistent with the due diligence purpose underlying the provisions. Accordingly, I consider that the term “franchisee” in that provision should also be construed as including a “prospective franchisee”.
106 Fourthly, in construing provisions in the Franchising Code, such as clause 6A, it is important to adopt an approach which acknowledges and gives effect to the remedial nature of that legislation. As the Full Court observed in Rafferty v Madgwicks (2012) 203 FCR 1 at [149]:
The Code, and the Franchising Code Regulations and the provisions of the TPA under which they are made, are remedial and intended to be protective of prospective franchisees. The relevant provisions are to be construed broadly to afford “the fullest relief which the fair meaning of [their] language will allow”.
107 It is also apposite to note in this context the following observations of the High Court in Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 at [25] regarding the purposes of the scheme of Part IVB of the TP Act and the Franchising Code (albeit in respect to an earlier version of the Franchising Code):
The purposes of the scheme of Pt IVB and the Code in question are to regulate the conduct of persons in the franchising industry in order to improve business practices, to provide some protection to franchisees proposing to enter into franchise agreements and to decrease litigation. Those purposes are sought to be achieved, in large part, by ensuring that a prospective franchisee is in a position to make an informed decision about the operation of the franchise and is encouraged to take independent advice before entering into a franchise agreement. The scheme is largely directed to the franchisor, who is obliged to provide that information and advice…
108 And in the specific context of the purpose of item 20 of Annexure 1 to the Franchising Code, it is relevant to note the observations made by Logan J in Australian Competition and Consumer Commission v Seal-A-Fridge Pty Ltd (2010) 268 ALR 321 at [169], where his Honour described those requirements as being designed to provide information to a franchisee which would assist it in a “due diligence” investigation. I respectfully agree with that description and note that it is consistent with the following extract from the Explanatory Statement to the Trade Practices (Industry Codes-Franchising) Amendment Regulations 2010 (No. 1):
The Franchising Code provides minimum standards of disclosure and conduct to assist both franchisors and franchisees in undertaking the due diligence process.
109 Finally, the constructions I have set out above are supported by other relevant provisions in the Franchising Code. Perhaps most notably of all is the fact that the headings to both the long form and short form disclosure document (Annexures 1 and 2 respectively) are expressed in terms of “DISCLOSURE DOCUMENT FOR FRANCHISEE OR PROSPECTIVE FRANCHISEE” and “SHORT FORM DISCLOSURE DOCUMENT FOR FRANCHISEE OR PROSPECTIVE FRANCHISEE” respectively (bold emphasis in original). This makes abundantly clear that the information which is required to be disclosed in the case of either the long form or short form of disclosure document is intended to apply to both a prospective franchisee and an existing franchisee.
110 Returning now to outline other relevant provisions in the Franchising Code, clause 6B is important as it is the immediate source of a franchisor’s obligation to provide a current disclosure document. Relevantly, it is in the following terms (emphasising again the reference to a “prospective franchisee”):
6B Requirement to give disclosure document:
(1) A franchisor must give a current disclosure document to:
(a) a prospective franchisee; or
(b) a franchisee, if the franchisor or the franchisee proposes to renew, extend, or extend the scope of the franchise agreement.
…
As will emerge below, the reference to a “current” disclosure document loomed large in the parties’ arguments concerning the first limb of the cross-claim.
111 The Franchising Code imposes additional obligations on a franchisor prior to entering into a franchise agreement. They are to be found in Division 2.2 of Part 2. Clause 8 relevantly provides that Division 2.2 applies to a disclosure document in accordance with Annexure 1. Clause 10 then sets out the relevant obligations of a franchisor. It relevantly provides:
10 Franchisor obligations
A franchisor must give:
(a) a copy of this code; and
(b) a disclosure document; and
(c) a copy of the franchise agreement, in the form in which it is to be executed;
to:
(d) 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
…
112 Further obligations are imposed on a franchisor in clause 11 of the Franchising Code, which relevantly provides:
11 Advice before entering into franchise agreement
(1) The franchisor must not:
(a) enter into… a franchise agreement; or
…
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 advisor;
(ii) an independent business advisor: (sic)
(iii) an independent accountant; or
(b) for each kind of statement not received under paragraph (a), a signed statement 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.
…
113 The contents of the long form of a disclosure document which has to be provided to a prospective franchisee are set out in Annexure 1 to the Franchising Code. A disclosure document must commence with advice to a franchisee, including advice that they assess their financial position and obtain independent advice, and must also include information about the franchisor, its business experience, any current litigation affecting the franchise, details of existing franchises, material intellectual property rights, as well as certain financial details. It is those financial details which are relevant here. It is also to be noted that the information contained in Annexure 1 “must” be included in a disclosure document and “must” be given to a prospective franchisee at least 14 days before they enter into a franchise agreement.
114 The financial details which have to be included in a disclosure document are set out in item 20 of Annexure 1, which relevantly provides:
20 Financial details
20.1 A statement as at the end of the last financial year, signed by at least 1 director of the franchisor, whether in its directors’ opinion there are reasonable grounds to believe that the franchisor will be able to pay its debts as and when they fall due.
20.2 Financial reports for each of the last 2 completed financial years in accordance with sections 295 to 297 of the Corporations Act 2001, or a foreign equivalent of that Act applicable to the franchisor, prepared by the franchisor.
20.2A If:
(a) the franchisor is part of a consolidated entity that is required to provide audited financial reports under the Corporations Act 2001, or a foreign equivalent of that Act applicable to the consolidated entity; and
(b) a franchisee requests those financial reports;
financial reports for each of the last 2 completed financial years, prepared by the consolidated entity.
20.3 Items 20.2 and 20.2A do not apply if:
(a) the statement under item 20.1 is supported by an independent audit provided by:
(i) a registered company auditor; or
(ii) if the franchisor is a foreign franchisor – a foreign equivalent for that franchisor;
within 12 months after the end of the financial year to which the statement relates; and
(b) a copy of the independent audit is provided with the statement under item 20.1.
(b) Factual findings concerning the Disclosure Document
115 It is common ground, that, on or about 21 July 2010, SPAR Licensing provided MIS with a document entitled “Disclosure Document for Franchisee or Prospective Franchisee” (“the Disclosure Document”). The Disclosure Document is signed by Mr Leigh Carson, the then chief executive officer of SPAR Licensing. The document records that it was prepared on 21 July 2010. The document also records that it “sets out the information required in response to each of the items set out in Annexure 1 to the Franchising Code of Conduct (Code) prescribed under s 51AE of the Trade Practices Act 1974”. (It might also be noted in this context that it was common ground that Annexure 1 applied here because the expected annual turnover exceeded $50,000).
116 Although MIS received the Disclosure Document around 21 July 2010, it is significant to note that the Franchise Agreement was not executed until 1 February 2011 i.e. more than 6 months later. Mr Ruberto accepted under cross-examination that the Franchise Agreement bearing that date was the operative agreement (earlier in his evidence in chief Mr Ruberto had referred to a franchise agreement dated 8 December 2010, but it appears that it was superceded by the document executed on 1 February 2011).
117 In view of the significance SPAR attached to the finalisation date of the SPAR Group’s financial statements and reports for the financial year ended 30 June 2010, I should record the following additional relevant findings of fact in respect of that matter:
(a) a copy of the financial statements and reports for SPAR Australia for the financial year ended 30 June 2010 were in evidence. Note 4 to the financial statements states that, from 1 July 2009, SPAR Australia and its eligible subsidiaries (which include SPAR Licensing) had formed a tax consolidated group for income tax purposes;
(b) there was no evidence indicating that consolidated group status applied to the Group in any earlier financial year;
(c) Mr Stephens, the chief financial officer for SPAR Australia, gave evidence (which I accept) that SPAR Australia’s financial statements and reports for the financial year ended 30 June 2010 were not finalised until 10 September 2010, i.e. several months after the Disclosure Document was provided to MIS. Those financial statements and reports were filed with ASIC in early December 2010; and
(d) there was no evidence before the Court indicating when the financial statements and reports for SPAR Licensing were completed in respect of the financial year ended 30 June 2009, nor were those statements and reports in evidence.
118 It is now convenient to record some relevant features of the contents of the Disclosure Document. Clause 20 of the Disclosure Document dealt with the subject of “Financial details”. The structure of clause 20 is to set out the terms of the relevant legislative requirements imposed by the Franchising Code and then address each of those requirements. Because of its significance, clause 20 is set out in its entirety below:
20 Financial details
20.1 A statement as at the end of the last financial year, signed by at least one director of the franchisor, whether in its directors’ opinion there are reasonable grounds to believe that the franchisor will be able to pay its debts as and when they fall due.
See Directors’ statement attached at Annexure one.
20.2 Financial reports for each of the last 2 completed financial years in accordance with sections 295 to 297 of the Corporations Act 2001, or a foreign equivalent of that Act applicable to the franchisor, prepared by the franchisor.
See Independent Audit report attached at Annexure two.
20.2A If:
(a) the franchisor is part of a consolidated entity that is required to provide audited financial reports under the Corporations Act 2001, or a foreign equivalent of that Act applicable to the consolidated entity; and
(b) a franchisee request those financial reports;
financial reports for each of the last 2 completed financial years, prepared by the consolidated entity.
20.3 Items 20.2 and 20.2A do not apply if:
(a) the statement under item 20.1 is supported by an independent audit provided by:
(i) a registered company auditor; or
(ii) if the franchisor is a foreign franchisor – a foreign equivalent for that franchisor;
within 12 months after the end of the financial year to which the statement relates; and
(b) a copy of the independent audit is provided with the statement under item 20.1
See Independent Audit report attached at Annexure two.
119 Annexure one to the Disclosure Document is entitled “Director’s (sic) statement”. On the next page of Annexure one there is set out on SPAR Licensing letterhead a letter dated 31 August 2009 signed by two directors of SPAR Licensing. The letter is headed “Statement of Solvency” and is in the following terms:
As at 30 June 2009, the Directors of SPAR Licensing Pty Ltd are of the opinion that there are reasonable grounds to believe that SPAR Licensing Pty Ltd will be able to pay its debts as and when they fall due.
120 It is important to note that the Statement of Solvency expressly related only to the position as at 30 June 2009 (bearing in mind that the Franchise Agreement was not executed until 1 February 2011).
121 The Disclosure Document contains several other documents (including a draft franchise agreement) but, notably, it did not contain any financial reports in respect of either SPAR Licensing or the consolidated SPAR Group. As will emerge below, this omission formed part of the complaint that the Disclosure Document was non-compliant.
122 Annexure two to the Disclosure Document is entitled “Independent auditor’s statement”. On the next page is a one page report on the letterhead of Hacketts DFK entitled “Independent Auditor’s Report to SPAR Licensing Pty Limited”. The Report is dated 31 August 2009 and it concludes with the following statement under the heading “Auditor’s Opinion”:
In our opinion, the statement by the Directors dated 31 August 2009 presents fairly the Directors’ opinion pursuant to Item 20 of Annexure 1 to the Franchising Code of Conduct that there are reasonable grounds to believe that SPAR Licensing Pty Limited will be able to pay its debts as and when they fall due.
(c) Summary of parties’ respective arguments
123 The cross-claimants complain that the document provided by SPAR Licensing on or about 21 July 2010 was non-compliant because:
(a) it did not contain a statement in accordance with item 20.1 of Annexure 1 to the Franchising Code. That was because the directors’ statement of solvency dated 31 August 2009 was directed to the financial position of the company as at 30 June 2009, whereas MIS contended that, for the purposes of item 20.1, the “last financial year” was that which ended 30 June 2010;
(b) in circumstances where there was no directors’ statement for the year ended 30 June 2010, the proviso in item 20.3 did not apply. That meant that it was necessary for SPAR Licensing to attach financial reports for the financial years ending 30 June 2009 and 30 June 2010; and
(c) the Disclosure Document did not contain any financial reports at all.
124 The cross-claimants further contend that the Disclosure Document and draft franchise agreement (which was annexed to the Disclosure Document) were intended to be relied upon by them and were in fact relied upon by them in deciding whether or not to become a SPAR franchisee. Mr Aplin and Mr Sichter both gave evidence to the effect that, had they known the true position concerning the financial position of SPAR’s financial circumstances, they would not have entered into either the Special Offer Agreement or the Franchise Agreement.
125 Various material concerning SPAR Australia’s financial position as at 30 June 2010 was tendered. None of that material was disclosed to the cross-claimants prior to these proceedings. The material included SPAR Australia’s financial report for the financial year ending 30 June 2010, as well as the chief executive officer’s report to the board of SPAR Australia for its meeting held on 13 December 2010. Minutes of the board meeting were also in evidence.
126 That material revealed that:
(a) SPAR Australia had lost $5.8 million for the financial year ended 30 June 2010;
(b) in May 2010, SPAR Australia’s bankers, Westpac Banking Corporation, restricted SPAR’s credit by capping its finance facility at $6.2 million. SPAR Australia’s financial report for the year ended 30 June 2010 noted at page 2 that as the amount of the cap imposed on the financial facility by Westpac “presented a problem for the Group in meeting its debts, due to the large fluctuation in the Group’s cash flow, it presented a serious consideration for your Board”;
(c) the directors of SPAR Australia recorded at page 24 of the financial statements that, while they were confident that the Group would secure a $2 million capital injection by 30 September 2010 (which was a condition of the Group’s financier’s credit facility) and that they believed that the Group was a going concern and was able to pay its debts as and when they became due and payable, that statement was then qualified by the following information:
The Directors recognised that given the current legal impediment to securing a potential capital injection, difficulty of raising additional share capital from alternative sources, compliance with the Consolidated Group’s financier’s credit facility conditions and the current economic environment of reduced liquidity, there remains significant uncertainty that the Consolidated Group will continue as a going concern and, therefore, whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. No adjustments have been made relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Consolidated Group not continue as a going concern (emphasis added).
(d) to similar effect, the Group’s independent auditors declared that:
… there is significant uncertainty whether the group will be able to continue as a going concern and therefore whether they will realise their assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial report (emphasis added).
127 The chief executive officer’s report for the SPAR Australia board meeting on 13 December 2010 revealed that:
(a) SPAR Australia suffered a loss of $161,000.00 for October 2010, against a budgeted profit of $11,000.00;
(b) monthly sales were under budget by $1.3 million; and
(c) SPAR Australia was engaged in a practice of holding cheques for payment to creditors and that this was causing “misreporting of both creditors and cash on hand numbers”.
128 The minutes of the extraordinary general meeting of SPAR Australia held on 31 August 2010 were also relied upon by MIS as revealing the following matters concerning the Group’s financial position as at 30 June 2010:
(a) as at that date, SPAR Australia’s financial position was deteriorating and SPAR Australia was close to insolvency when Westpac advised of the reduction in SPAR’s financial facility; and
(b) the reduction in that facility critically limited SPAR Australia’s ability to pay its debts as and when they fell due.
129 Finally, the cross-claimants contended that the minutes of the meeting of the board of directors of SPAR Australia held on 13 December 2010 revealed that:
(a) SPAR Australia had a poor profit performance caused by below budget sales; and
(b) SPAR Australia was continuing to trade at a loss.
130 Mr Aplin gave evidence, which I accept, that if he had known of the information contained in the financial statements and report for the financial year ended 30 June 2010 he would not have entered into the Franchise Agreement. He said that he already had:
… a range of issues at that time relating to volume and the flow-on effects that would have, to promotional pricing and the like, having an understanding at that time as to what the other aspects of the business were would have potentially made me feel somewhat uneasy at that stage.
131 I also accept Mr Sichter’s evidence that he would not have agreed to enter into the Franchise Agreement if he had been provided with those financial statements and reports. Mr Sichter provided the following explanation which I find to be entirely credible:
…[It] would have been very dangerous to be setting up a business arrangement with somebody who may or may not have been there in the long term and the disruption that that would have caused to our supply chain to the store. I wouldn’t have entertained it.
132 As noted above, Ms Ward did not give evidence. She holds 25 per cent of the shares in MIS and is the third director of the company, along with Messrs Aplin and Sichter. Having regard to Messrs Aplin and Sichter’s respective shareholdings and directorships, Ms Ward’s absence from the witness box does not preclude me from finding, as I do, that MIS would not have entered into the Franchise Agreement if it had been provided with the financial statements and report for SPAR Australia for the financial year ended 2010.
133 The cross-claimants sought the following relief in respect of the first limb of their cross-claim:
(a) a declaration that the cross-respondents had contravened s 51AD of the TP Act; and
(b) an order that the Franchise Agreement is void.
134 I found SPAR’s submissions concerning the first limb of the cross-claim difficult to follow at times, but they seemed to be as follows:
(a) SPAR Licensing prepared the Disclosure Document on 21 July 2010 and provided it to MIS around 21 July 2010;
(b) under clause 6 of the Franchising Code, the next disclosure document was not due to be created until 31 October 2010, being four months after the following financial year;
(c) accordingly, because the next disclosure document was not required to be created until 31 October 2010, the most current required disclosure document as at 21 July 2010 was a document relating to the 2009 financial year;
(d) particular emphasis was placed on the wording of clause 6B(1) of the Franchising Code, and the obligation imposed on a franchisor to give a prospective franchisee a “current disclosure document”. SPAR argued that the Disclosure Document was the “current disclosure document” and that it was not possible for it to provide a more current disclosure document relating to the 2010 financial year because the financial accounts for that period were not finalised until 10 September 2010;
(e) SPAR accepted that it had not complied with items 20.2 and 20.2(a) of Annexure 1 of the Franchising Code, but claimed that it had complied with item 20.1 because the Disclosure Document contained the directors’ statement as to solvency in respect of the 2009 financial year; and
(f) even though SPAR accepted that it had not complied with items 20.2 and 20.2(a), it said that this was of no consequence because it relied on item 20.3 and the fact that the Disclosure Document provided to the cross-claimants also contained in Annexure two the independent auditor’s report in respect of the 2009 financial year and that was all that was required.
135 Mr Wylie submitted that SPAR’s position turned on the proper meaning of the phrase “current disclosure document” in clause 6B of the Franchising Code.
136 Mr Wylie also submitted that, even if a finding were made that SPAR had not complied with the Franchising Code, the Franchise Agreement would not necessarily be rendered void having regard to the High Court’s decision in Master Education Services. He drew attention to [25] of that decision and, in particular, to the following passage:
Section 51AD may be seen to promote compliance with the Code, by providing, in effect, that non-compliance will amount to a contravention, for which there are remedies available under Pt VI. It is no part of the scheme, and unnecessary to the purposes mentioned, to strike down a contract made by a non-complying franchisor. It is sufficient for the purpose of the scheme that a franchisor is aware of the obligations imposed by the Code and that action may be taken by a franchisee under the Act with respect to a contravention of s 51AD.
137 Mr Wylie also properly drew the Court’s attention to the following passage from [27] in Master Education Services:
The provision of remedies in Pt VI may be seen as directed to the range of circumstances which may arise in cases where there has been a failure by a franchisor to provide some or any information to a prospective franchisee or to evidence the giving of that information and the receipt of the necessary advices, as cl 11(1) requires. In some cases the non-compliance may be such as to warrant the court striking a contract down on the application of a franchisee. Such a result would not necessarily follow upon any breach of cl 11(1), which may not have involved any failure to give the required information or the franchisee not understanding it (emphasis added).
138 Mr Wylie submitted that one of the factors to be taken into account in determining whether to exercise the discretion to declare the Franchise Agreement void was what he described as the merely “technical and de minimis” nature of the non-compliance here.
139 Mr Wylie also contended that the directors of MIS were aware in September 2010 that SPAR was having some financial difficulties. Reliance was placed on a letter signed by Mr Carson, the chief executive officer of SPAR Australia, addressed to “Retailers & Shareholders”. It was said to be dated 6 September 2010. Mr Aplin acknowledged that he had received the letter sometime in September 2010. Mr Sichter said that he had no recollection of receiving the letter. As noted above, Ms Ward did not give evidence but that does not preclude findings being made based upon the evidence of Messrs Aplin and Sichter.
140 SPAR’s central argument was that it had complied with the obligation under clause 6B(1) to provide “a current disclosure document” to MIS by providing it with the Disclosure Document around 21 July 2010. SPAR’s argument appears to be predicated on the proposition that it is sufficient for it to create a disclosure document within 4 months after the end of each financial year and to use that document to satisfy its disclosure obligations (vis a vis both any prospective franchisee or an existing franchisee) until such time as another disclosure document is created within 4 months after the end of the next financial year. (Incidentally, it may be assumed that the reference to the 4 month period in clause 6 of the Franchising Code reflects the practical effect of the operation of s 319 of the Corporations Act 2001 (Cth)).
141 In my opinion, SPAR’s arguments should not be accepted for the following reasons. First, in my view, a franchisor’s obligation under sub-clause 6B(1) to give “a current disclosure document” to a prospective franchisee has to be understood in the context of the related obligation imposed on a franchisor under clause 6 to create a disclosure document. As the terms of clause 6 make clear, that creation obligation arises in two distinct circumstances, namely:
(a) where the franchisor is proposing to enter into a franchise agreement with a prospective franchisor; and
(b) where a franchise agreement has already been entered into, in which case there is a separate obligation to create a disclosure document within 4 months after the end of the financial year in which the franchise agreement was entered into.
142 Thus, the obligation to create and give a Disclosure Document can arise in two distinct situations: one involving a prospective franchisee in circumstances where the franchisor may or may not have any existing franchises and the other circumstance being where a franchise agreement already exists with the relevant franchisee. In my view, no assumption should be made that a single disclosure document created within the stipulated 4 month period after a financial year end (and where there is an existing franchisee) necessarily satisfies the obligation to provide a current disclosure document to a prospective franchisee.
143 In particular, I do not accept the implication of SPAR’s argument that a disclosure document created within the stipulated 4 month period where a franchise agreement already exists, is also necessarily “a current disclosure document” in the circumstances of a case such as the present. In my view, this question must turn on the particular circumstances of any case, as well as on the need to give effect to the stated purposes underlying the disclosure document regime. In this case there was a delay of more than six months between provision of the disclosure document and execution of the Franchise Agreement. The relevant financial statements were finalised in about the middle of that period. They were available to the franchisor for about four months prior to the Franchise Agreement being executed by the parties, but those financial statements were not disclosed to MIS, nor was MIS provided with any solvency statement signed by at least one of the franchisor’s directors in respect of the financial year ended 30 June 2010, nor any supporting independent auditor’s report.
144 As noted above, the purposes of the disclosure document (as declared in clause 6A) are to help a franchisee (including a prospective franchisee) to make a reasonably informed decision about a franchise and to give the franchisee (including a prospective franchisee) “current information” regarding the franchisor which is material to the running of the franchised business. There is a clear risk that those purposes may not be achieved if a prospective franchisee is provided with a disclosure document which does not contain current and prescribed information concerning such a centrally important matter as the solvency and financial position of the franchisor to enable the prospective franchisee to make an informed decision whether or not to enter into a franchise agreement.
145 Indeed, that is the situation here when account is taken of the Board’s own description in the 13 December 2010 Board meeting minutes of the SPAR Group’s “tenuous position” at that time. That gloomy financial situation was revealed in the material described in [125] to [129] above. In circumstances where the Franchise Agreement between SPAR Licensing and MIS was not executed until 1 February 2011, I consider that SPAR Licensing was obliged to create and provide MIS with a disclosure document which contained the required financial information pertaining to SPAR Licensing (either independently or, where appropriate, as part of a consolidated group) which was current at the time MIS’s directors were determining whether or not to sign the Franchise Agreement. Such a disclosure document should have contained a statement of solvency signed by at least one director of SPAR Licensing, together with copies of the financial statements and reports for the financial years ending 30 June 2009 and 30 June 2010 or, alternatively, an independent auditor’s report supporting the statement of solvency.
146 In my view, the applicants’ obligation to provide a current disclosure document containing the material I have referred to above cannot be excused by reference to the financial information provided to SPAR’s retailers and shareholders in Mr Carson’s letter (which Mr Aplin agreed he received some time in September 2010). That letter reported the recent acceptance by SPAR’s shareholders of a capital injection from Jardim Investments Pty Ltd. It also made reference to SPAR having recorded a loss for the 2010 Financial Year. Mr Carson stated that SPAR Australia was “forecasting profitable growth in the 2011 Financial Year”. As is apparent from the terms of his letter, Mr Carson sought to convey an optimistic view of SPAR’s future.
147 In my opinion, a prospective franchisee such as MIS was entitled to receive more financial details than those contained in Mr Carson’s letter to enable it to make an informed view about the franchisor’s solvency and financial health. The point is highlighted by the timing of Mr Carson’s letter. The applicants say that it was dated 6 September 2010, which is four days before the financial statements and reports were finalised. As noted above, that material contained important statements by both the directors of SPAR Australia and the independent auditors regarding the “significant uncertainty” whether the Group would be able to continue as a going concern. Mr Carson’s letter predated those important qualifying statements.
148 If MIS had entered into the Franchise Agreement shortly after being provided with the Disclosure Document around 21 July 2010 (noting of course that some allowance would need to be given to the minimum 14 day period which has to be provided to a prospective franchisee to enable it to absorb the material it receives from the franchisor and to enable it to obtain relevant advice), it may well be that the Disclosure Document would have been compliant. That is because the relevant financial information would have been reasonably current and would have served the underlying purposes of its disclosure. But that is not what occurred. There was a delay of over 6 months after MIS received the Disclosure Document before the Franchise Agreement was ultimately executed, during which time the financial position of the SPAR Group seriously deteriorated as was reflected in the 2010 financial statements and report finalised on 10 September 2010. The deterioration was so profound that the SPAR Group’s 2010 financial report recorded the Group’s auditors as saying that “there is significant uncertainty whether the group will be able to continue as a going concern”. That information was centrally relevant to the Group’s solvency at that time, including the franchisor. It was material information for the due diligence exercise being undertaken by MIS and its directors in the period leading up to their execution of the Franchise Agreement on 1 February 2011. But that information was not reflected in the Disclosure Document which was provided to MIS and its directors around 21 July 2010, nor was it provided to MIS subsequently and prior to the execution date of 1 February 2011.
149 Secondly, the views I have expressed above appear to me to both reflect and give appropriate effect to the significance which the regulatory scheme attaches to a prospective franchisee being provided with current and reliable financial information in relation to the franchisor. The same specified financial details have to be provided to a prospective franchisee under both the long form and short form disclosure documents (in other words, irrespective of whether the estimated annual turnover from the franchise is above or below $50,000 a year). This highlights the importance attached to the provision of such financial information to a franchisee, particularly in circumstances where many of the other items of information which are mandatory in a long form disclosure document are not mandatory in a short form disclosure document. The regulatory regime operates on the basis that the obligation of a franchisor to provide those items of information is only enlivened if a prospective franchisee under a short form disclosure document asks that the information be provided (see clause 6C of the Franchising Code).
150 Thirdly, I have considered the relevance to the task of construction of the presence in the Franchising Code of various express provisions which impose obligations on a franchisor to provide updated information which is not contained in a disclosure document. The issue is whether the presence of one or more of those various provisions operates to preclude the construction I have adopted above (i.e. by operation of the maxim expressio unius est exclusio alterius).
151 Such provisions include:
(a) clause 18 of the Franchising Code, which requires a franchisor to inform a prospective franchisee or franchisee of certain matters within 14 days of the franchisor becoming aware of the matters (and where the matters are not mentioned in a disclosure document). The relevant matters which attract this obligation include such things as a change in majority ownership or control of the franchisor, the franchisor’s involvement in prescribed criminal or civil legal proceedings, material changes in the ownership and control of intellectual property relevant to the franchise system etc. It is to be noted that there are separate provisions in both the short form and long form disclosure document which require information on those sorts of matters to be disclosed in the body of a disclosure document. Clause 18 effectively obliges the franchisor to update the prescribed information where there are material changes after finalisation of a disclosure document. The matters the subject of the obligation do not include the financial details required under item 20 of Annexure 1;
(b) a further related example is in item 21.1 of Annexure 1. It imposes an obligation on a franchisor to update any information given under clause 18 of the Franchising Code that has changed between the date of preparation of the disclosure document and the date the disclosure document is provided under the Code (there is no comparable express obligation in this respect under Annexure 2, but a franchisee under a short form disclosure document is entitled to ask the franchisor to provide the information referred to in various sections in Annexure 1, including item 21). Again, it is to be noted that the obligation is confined to the specific matters set out in clause 18 of the Franchising Code;
(c) a separate obligation in the nature of continuous disclosure is also imposed by item 18 of Annexure 1. There is a primary obligation on the franchisor to include in a disclosure document a summary of requirements under a franchising agreement for the franchisee to enter into prescribed related agreements, such as a lease or a hire-purchase agreement. Copies of any such relevant agreements must also be provided to the franchisee at least 14 days before the franchise agreement is executed, if copies are available then. If they are not, they must be provided when they become available (see item 18.2). This obligation does not extend to the financial details required under item 20 of Annexure 1; and
(d) clause 19 of the Franchising Code deals with the right of a franchisee to request that the franchisor provide it with a current disclosure document. The franchisor must provide such a disclosure document within 14 days of receiving any such written request, but the franchisee can only make one such request every 12 months. It is evident that this provision operates where there is already in place a franchise agreement and the franchisee wants to review an updated disclosure document. The provision effectively creates a mechanism where an existing franchisee can oblige the franchisor to provide an updated disclosure document once in every 12 month period during the term of a franchisee agreement. It has no application of a prospective franchisee.
152 For the following reasons, I do not consider that these provisions preclude the construction set out above:
(a) it is now well established that the expressio unius maxim needs to be applied with particular care. As the High Court observed in Houssein v Under Secretary, Department of Industrial Relations and Technology (NSW) (1982) 148 CLR 88 at 94:
That maxim must always be applied with care, for it is not of universal application and applies only when the intention it expresses is discoverable upon the face of the instrument Saunders v Evans. It is “a valuable servant, but a dangerous master”: Colquhoun v Brooks (citations omitted).
(b) I do not discern on the face of any of the provisions of the Franchising Code (whether viewed individually or collectively) any intention to limit the meaning of “current disclosure document” in the manner advanced by the applicants;
(c) there is no inconsistency or contradiction in having various explicit obligations on a franchisor to keep a disclosure document updated and there being an obligation in the circumstances of this particular case to provide an up to date disclosure document to MIS in the manner I have outlined above; and
(d) in my view the purpose and object of the disclosure regime would be seriously frustrated if the presence of the various individual provisions requiring updating were regarded as exhaustive and precluded a construction of the obligation to provide a “current disclosure document” which, in the circumstances of this particular case, required the franchisor to provide to MIS prescribed financial details in respect of the financial year ended 30 June 2010.
153 Having regard to the finding that SPAR Licensing contravened the Franchising Code, the question then arises as to whether it is appropriate to grant the relief sought by the cross-claimants. As noted above, the cross-claimants seek a declaration that SPAR Licensing has engaged in conduct in contravention of s 51AD of the TP Act; an order pursuant to either s 82 or s 87 of the TP Act that SPAR Licensing pay MIS damages for the loss suffered by it by reason of that conduct; and/or an order pursuant to s 87 of the TP Act that the Franchise Agreement and/or Special Offer Agreement are void.
154 Mr Wylie acknowledged that it was appropriate to make a declaratory order if the Court concluded that there had been a contravention of the Franchising Code, but he submitted that no order should be made which rendered void either the Franchise Agreement or the Special Offer Agreement on the basis that any non-compliance with the disclosure requirements was “merely technical and de minimis”. He added that account should also be taken of the fact that MIS had derived certain financial benefits as a result of the Special Offer Agreement.
155 It is convenient to deal in turn with each of the three forms of relief sought by the cross-claimants.
(i) Declaration of contravention
156 In my view this is an appropriate case in which to make a declaration of contravention. Consistently with the approach I have taken below, I will direct the parties first to seek to agree the terms of a proposed declaration.
157 In my view, having regard to my findings below regarding the second limb of the cross-claim and the consequential order for damages, the cross-claimants have not established any basis upon which they should also receive an additional award of damages in respect of SPAR Licensing’s breach of s 51AD of the TP Act.
(iii) Setting aside or varying the Franchise Agreement and/or Special Offer Agreement
158 As the High Court held in Master Education Services, the TP Act provides “a more flexible approach” than the common law in determining what is an appropriate remedy where s 51AD of the TP Act has been contravened. The High Court said at [38]:
The Act provides a more flexible approach. It allows a court to prevent entry into a franchise agreement, to vary the terms of an agreement entered into in breach of the Code, or to terminate such an agreement or provide compensation for loss and damage, if it is shown to have been caused by the contravention. In that regard the extended meaning which may be given to loss and damage by s 82, which is suffered by reason of entry into contractual obligations, may assume significance.
159 While the High Court found that a contravention did not necessarily render void every franchise agreement entered into where a franchisor had not complied with the Code, regard has to be had to the circumstances of a particular case in determining what relief is appropriate. As the High Court observed at [39]:
Some cases of non-compliance with cl 11 might involve substantial non-disclosure; others may only involve a failure to obtain the written statement, confirming that the franchisee has read and understood the disclosure document and the Code.
160 I consider that those observations also apply to a case, such as here, involving non-compliance with clauses 6B and 10 of the Franchising Code.
161 For the following reasons, I consider that this is an appropriate case to vary the terms of the Franchise Agreement, but (with some hesitation) not to set aside either it or the Special Offer Agreement.
162 First, the franchisor’s contravention of s 51AD is, in the circumstances of this matter, a serious matter. MIS was deprived of information which was centrally relevant to its assessment of the franchisor’s financial circumstances in the time leading up to the execution of the Franchise Agreement. The relevant information in the financial statements and report for the financial year ended 2010 for SPAR Australia conveyed a significantly less optimistic and more uncertain picture than that conveyed in Mr Carson’s letter which was distributed in September 2010 (and received by Mr Aplin, but not Mr Sichter). Both Messrs Aplin and Sichter gave convincing evidence that they would not have agreed to execute the Franchise Agreement if they had been made aware of that financial information.
163 Secondly, in my view, no significance should attach to the fact that MIS’s directors did not obtain legal or accounting advice prior to signing the Franchise Agreement, even though the Disclosure Document recommended that they do so. It is difficult to see how any such advice would have been relevant having regard to the nature of SPAR Licensing’s contravening conduct. That contravening conduct was a failure to provide current financial information as required by the Franchising Code. SPAR’s financial position had seriously deteriorated during the course of the financial year ended 30 June 2010, the only relevant financial information provided with the Disclosure Document related to the financial year ended 30 June 2009. That financial information painted a quite different picture of the franchisor’s financial health compared with the financial statements and report for the following financial year. In circumstances where I have found that at the time MIS determined to execute the Franchise Agreement it had not been provided with current relevant financial information concerning the franchisor, it is difficult to see how the recommendation to obtain external legal advice would have been relevant.
164 Thirdly, SPAR Licensing’s contravening conduct cannot be described as technical or de minimis having regarding to the different picture conveyed by the financial information which was provided to MIS in the Disclosure Document, compared with the rather gloomy picture painted by the financial statement and reports for the following financial year.
165 Fourthly, despite the seriousness of SPAR Licensing’s contravention, I do not consider that this is an appropriate case to set aside either or both the Franchise Agreement and the related Special Offer Agreement. Rather, I consider that, in the circumstances of this particular case, it is appropriate to vary the terms of both the Franchise Agreement and the Special Offer Agreement so as to enable MIS to terminate those agreements on payment of the requisite termination and associated fees. My reasons for concluding that such relief is appropriate here are as follows:
(a) despite the seriousness of SPAR Licensing’s contravention, MIS’s financial loss arising from it being restrained from converting to Metcash/IGA is relatively modest. As will emerge further below when I deal with the other limb of the cross-claim, MIS’s loss arising from its entry into the Franchise Agreement and then being restrained from converting to Metcash/IGA is an amount of $21,172.00 (representing MIS’s net loss for the period 1 September 2011 to 30 April 2012, as assessed by Mr Benjamin (MIS’s independent expert), who assumed that MIS was deprived of an opportunity to benefit from a one-off increase of 10 per cent in sales revenue by not being able to convert to Metcash/IGA from 1 September 2011);
(b) as Mr Wylie pointed out, even if it be accepted that MIS was deprived of the benefits of that one-off increase, it also enjoyed some financial benefits during the time that it was a SPAR franchisee, including increasing its sales by approximately 16 per cent over the eighteen month period ending May 2012. Mr Aplin agreed under cross-examination that MIS’s revenue increased by between 15 to 20 per cent in 2011 and that it continued to enjoy sales growth in the range of 12 to 16 per cent in 2012. Those sales increases (which are not to be confused with a one-off increase if MIS had switched to Metcash/IGA) may have been partly related to the financial concessions made by SPAR to MIS in the Special Offer Agreement, noting that some of those concessions were only available for the first twelve months of that arrangement; and
(c) although the cross-claimants sought to have the Franchise Agreement and Special Offer Agreement set aside ab initio, there is some tension between those claims and the relief they seek in respect of the second limb of the cross-claim. As Mr Perry SC submitted in his closing written submissions, the corollary of a finding that the cross-claimants had made good their misleading and deceptive conduct case is that they must pay SPAR Licensing the termination and related payments specified in the Franchise Agreement. In the circumstances of this particular case, I think it appropriate that those payments should be made concomitant upon MIS extricating itself from a Franchise Agreement. The liability to pay those termination fees should not be circumvented by setting aside ab initio the Franchise Agreement and related Special Offer Agreement.
misleading and deceptive conduct
166 The second limb of the cross-claim involves allegations that, prior to the execution of the Special Offer Agreement and Franchise Agreement, SPAR Licensing made certain representations to the cross-claimants which they relied upon in executing those agreements. In broad terms, the alleged representations were to the effect that, if MIS became a SPAR franchisee and then later wanted to convert to IGA and terminate its franchise agreement with SPAR, MIS could do so on condition that it pay SPAR the termination and related fees set out in the SPAR franchise agreement. The cross-claimants further allege that those representations were misleading and deceptive in that SPAR was now seeking inter alia to restrain MIS from terminating the Franchise Agreement. The cross-claimants seek declaratory relief, orders setting aside or varying the Franchise Agreement and/or the Special Offer Agreement, as well as damages for the loss they say they have suffered as a result of not being able to switch to IGA.
167 Because of the central importance of the terms of the alleged representations, it is convenient to set it out in full paragraph 14 of the statement of cross-claim. It should be noted that, while the pleading is expressed in terms of there having been a representation, the cross-claimants’ case was presented on the basis that there were three related representations. In my view it is appropriate to deal with the matter on that basis, which is also consistent with references elsewhere in the statement of cross-claim to “representations” (for example, paragraphs 15 and 16 of the statement of cross-claim). Paragraph 14 is as follows:
14. In about late September 2010 the First Cross-Respondent represented to the Cross-Claimants that:-
(a) if the Cross-Claimants entered into the Franchise Agreement the First Cross-Respondent would agree to the First Cross-Respondent resigning from the conduct of the SPAR franchised store business and withdrawing from the Franchise Agreement so that the First Cross-Claimant could join the IGA franchised supermarket business;
(b) if the Cross-Claimants entered into the Franchise Agreement the First Cross-Respondent would agree to the First Cross-Respondent resigning from the conduct of the SPAR franchised store business so that the First Cross-Respondent could join the IGA franchised supermarket business and withdrawing from the Franchise Agreement and that the only penalty that the First Cross-Respondent would enforce against the Cross-Claimants was the payment by the Cross-Claimants of the sums referred to in clause 20.6 and the Schedule to the Franchise Agreement to the First Cross Respondent;
(c) upon resigning from the SPAR franchised store business and withdrawing from the Franchise Agreement the Cross-Claimants would not be bound by the Special Offer Agreement.
Particulars
The representation was oral and was made by Gale at a meeting that took place between the First Cross-Respondent, by Gale, and each of the Cross-Claimants at the Cleveland Sands Hotel, cnr Middle and Broomfield Streets Cleveland in late September 2010.
168 The substance of the alleged representations may be summarised as follows:
(a) SPAR Licensing told MIS and its 3 directors that SPAR would not oppose MIS terminating the proposed SPAR franchise agreement if MIS wanted later to convert to IGA;
(b) if MIS did terminate the proposed franchise agreement with SPAR the only penalty would be that MIS pay SPAR the specified termination and related fees set out in the proposed franchise agreement; and
(c) if MIS withdrew from the SPAR proposed franchise agreement, the proposed special offer agreement would cease.
169 The representations are said to have been made in contravention of s 18 of the Australian Consumer Law. The cross-claimants allege that the representations were misleading and deceptive because SPAR Licensing and SPAR Australia have acted inconsistently with the representations by:
(a) refusing to permit the cross-claimants to withdraw from the Franchise Agreement;
(b) insisting that the cross-claimants continue to be bound by the Special Offer Agreement;
(c) seeking specific performance by the cross-claimants of both those agreements;
(d) obtaining an interlocutory injunction preventing the cross-claimants from resigning from the SPAR franchise store business and withdrawing from the Franchise Agreement; and
(e) obtaining an interlocutory injunction requiring the cross-claimants to continue to be bound by the Special Offer Agreement.
170 The cross-claimants seek the following relief:
(a) damages, primarily by reference to the loss which they claim they suffered because of the lost opportunity to join the IGA supermarket business from 1 September 2011; and/or
(b) a declaratory order that the cross-respondents have engaged in misleading and deceptive conduct and contravened s 18 of the Australian Consumer Law; and/or
(c) orders under either ss 82 or 87 of the CC Act to the effect that the Franchise Agreement and/or Special Offer Agreement are void.
171 In their defence to the statement of cross-claim, the cross-respondents deny the allegations in paragraph 14 of the statement of cross-claim. They also claim that, even if it were established that the alleged representations were in fact made, the cross-claimants had not relied on those representations in deciding to enter into either the Special Offer Agreement or the Franchise Agreement. They contend that the cross-claimants have failed to establish that they suffered any actual loss or damage which was caused by the alleged representations, with the consequence that they are not entitled to any relief under the CC Act. Finally, they contend that the cross-claimants failed to include any pleading or adduce any evidence of what they would have done had the alleged representations not been made.
172 The relevant issues arising under this limb of the cross-claim may be summarised as follows:
(a) were the alleged representations made by or on behalf of SPAR Licensing;
(b) if the representations were made, were they misleading or deceptive;
(c) if (a) and (b) are established, were the representations relied upon by the cross-claimants in deciding to enter into the Special Offer Agreement and the Franchise Agreement;
(d) is there a causal link between the representations and any loss or damage suffered by the cross-claimants; and
(e) what, if any, relief should be granted?
173 The structure I will adopt in dealing with this limb of the cross-claim reflects those five issues.
(a) Were the representations in fact made?
174 As noted above, in its defence SPAR flatly denied that the pleaded representations were ever made. Despite that position (and perhaps a little unusually), SPAR never put to any of the witnesses who gave relevant evidence which was inconsistent with SPAR’s denial in its defence that their evidence was incorrect. I shall now deal with that relevant evidence.
175 Mr Geoffrey Gale was called as a witness in the cross-claimants’ case. For most of the calendar year 2010, Mr Gale was employed by SPAR Australia as general manager-marketing, merchandising and retail operations. He was effectively second in charge of SPAR’s operations in Queensland. He reported to Mr Carson, the chief executive officer.
176 Mr Gale gave evidence, which I accept, that he met with Messrs Aplin and Sichter and Ms Ward in early December 2010 to discuss MIS becoming a SPAR franchisee in respect of their supermarket on Macleay Island. Mr Ruberto (SPAR’s retail business manager for the Metro West region, which included Macleay Island) was also present. The negotiations with MIS had been ongoing for several months and Mr Gale and other representatives of SPAR were aware that IGA was also encouraging MIS to enter into an IGA franchise. (At this time MIS had been obtaining dry groceries from SPAR for several years, but not under any franchise arrangement).
177 Mr Gale said that SPAR had a policy throughout 2009 and 2010 that, if a SPAR franchisee indicated that they wished to exit or resign their franchise with SPAR, the price demanded was that the franchisee pay the termination and related fees set out in the relevant franchise agreement. He said that, in the case of MIS, those fees were set out in clause 20.6 and Items 8-15 of the Schedule to the proposed franchise agreement, which he pointed out to the MIS directors during the course of their meeting.
178 Mr Gale gave evidence that this policy was known to Mr Carson. He said that he and Mr Carson had discussed the policy and that, although it was not written down, it was “just the way we did business at the time”. He said that the policy applied not only to MIS, but to other SPAR franchisees, such as the SPAR franchisee at the River Head Store in Hervey Bay and the stores operated by the Singh family at Murwillumbah and Tweed Heads.
179 Mr Gale then gave further evidence under cross-examination that, during the course of their meeting in early December 2010, he told the MIS directors that all they would have to pay or do if they wished to exit the SPAR franchise was pay the termination exit fees as set out in the franchise agreement. He said that this “was one of our selling points in the franchise agreement”.
180 When asked under cross-examination whether he told Mr Aplin or anyone else on behalf of MIS that it had any right to exit the SPAR franchise agreement, Mr Gale said: “Yes, I did”.
181 Mr Gale also acknowledged that, at the time of the discussions he had with the MIS directors concerning them becoming SPAR franchisees, he was aware that they were also speaking with IGA with a view to MIS becoming an IGA franchisee. He was concerned to ensure that that did not occur. He said that that was the reason why he was keen to persuade MIS to sign the SPAR franchise agreement.
182 Mr Aplin gave evidence, which I accept, regarding the representations made on behalf of SPAR Licensing in respect of MIS exiting the franchise and paying any termination or other fees. His evidence may be summarised as follows:
(a) he had several discussions throughout 2010 with Mr Gale and Mr Ruberto about becoming a SPAR franchisee. Mr Aplin had particular concerns about aspects of SPAR’s pricing and gaps in its generic product lines, however, Mr Gale proposed to the MIS directors a special offer agreement which “rectified” some of Mr Aplin’s concerns;
(b) in early December 2010 he, together with his co-directors (Mr Sichter and Ms Ward) met with Messrs Gale and Ruberto at the Cleveland Sands Hotel to discuss whether MIS would become a SPAR franchisee. One of the particular matters which was discussed was what would be the cost for MIS if it were to become an IGA bannered store after signing a SPAR franchise agreement. This was a matter of particular concern to Mr Aplin because of his plans to buy out his business partners in a year or two and then convert the store to IGA;
(c) as to the topics of MIS’s right to withdraw from the proposed SPAR franchise relationship and any consequential fees which would have to be paid, Mr Aplin gave evidence that, at their December 2010 meeting, Mr Gale said words to the following effect:
Basically, when I was ready to change to IGA and terminate the franchise agreement, that the penalties for us doing that before the end of the five year term would be that we would have to pay a termination fee, repay other associated fees.
(d) Mr Gale assured the MIS directors that a special offer agreement would be delivered shortly after the meeting. That in fact occurred and the Special Offer Agreement dated 8 December was signed by each of the MIS directors on 14 December 2010; and
(e) at that meeting, Mr Gale also took the MIS directors through a copy of the proposed franchise agreement and pointed out the provisions relevant to termination fees. He said that they had discussed clause 20.6 and various items set out in the Schedule which were referrable to clause 20.6.
183 Mr Christopher Sichter also gave evidence. As noted above, Mr Sichter and his wife, Ms Sharon Ward, are directors of MIS and each holds 25 per cent of the shares in the company. Their daughter, Cheree, is Mr Aplin’s partner. Mr Sichter gave evidence that, when Mr Aplin acquired 50 per cent of the shares in MIS in January 2010, he did so on the basis that, in a few years time, he intended to buy out the balance of the shares held by Mr Sichter and Ms Ward. Mr Sichter also said that Mr Aplin was “extremely pro IGA” and wanted to convert to IGA in the future after he acquired all the shares in MIS.
184 As to the meeting held in December 2010 at the Cleveland Sands Hotel referred to above, Mr Sichter gave the following evidence, which I accept:
(a) Mr Aplin raised with Mr Gale the subject of exit or termination fees in the event that MIS wished to exit the proposed SPAR franchise arrangement;
(b) Mr Gale had responded in the way Mr Aplin had described in his evidence, setting out what the exit fees were by reference to clause 20.6 of the proposed franchise agreement and the related Schedule; and
(c) if Mr Gale had not said what he did concerning MIS’s ability to exit the SPAR franchise arrangement on payment of the exit fees, Mr Aplin would not have agreed to sign the Franchise Agreement. Furthermore, unless Mr Aplin had indicated that he was willing to sign the Franchise Agreement, the matter would not have proceeded any further because Mr Aplin owned 50 per cent of MIS and his concurrence was essential if the SPAR franchise to proceed.
185 Mr Sichter also gave evidence, which I accept, that there had been various discussions during 2010 in which Mr Aplin made it plain to himself, Ms Ward and Mr Gale that he did not want to be tied to SPAR for five years (being the term of the proposed franchise agreement). Mr Aplin told them that as soon as he bought out the other shareholders in MIS, he would convert to IGA. Mr Sichter also said that it was in the light of what Mr Gale told them at the 3 December 2010 meeting about their capacity to exit the proposed SPAR franchise agreement on payment of the termination fees that he decided to sign the proposed franchise agreement.
186 As noted above, Mr Ruberto was also present at the meeting at the Cleveland Sands Hotel. Under cross-examination, he gave evidence, which I accept, that he had no recollection of Mr Gale making the alleged representations at that meeting concerning what would happen if MIS wished to terminate the Franchise Agreement. He said that during the course of the lunchtime meeting he frequently left the table to order lunches and drinks and was not present throughout the meeting. He also confirmed that the subject matter of the alleged representations was a matter within Mr Gale’s authority and was not of particular interest to him.
187 However, it should also be noted that Mr Sichter gave evidence, which I accept, that at an earlier meeting held on 14 September 2010 between representatives of MIS and SPAR, Mr Ruberto had given him personal assurances concerning MIS’s right to exit the proposed franchise agreement on payment of the prescribed fees. Those assurances were broadly similar to the representations subsequently made by Mr Gale at the 3 December 2010 meeting. Mr Sichter gave the following evidence of what he was told by Mr Ruberto at that earlier meeting:
Well, Ray Ruberto assured me, personally, that we could exit the franchise agreement by paying the termination fee, plus the other fees, advertising costs, etcetera, the RBM costs and he told me, in no uncertain terms, that they had to prove those amounts, they had to produce invoices for them to prove it, otherwise they couldn’t claim it. The figure that we – he told me that the figures that were in the franchise thing, were just a nominal figure.
188 As noted above, at no point did SPAR put to any of the relevant witnesses whose evidence I have summarised above that their evidence was incorrect as to whether the representations were in fact made. This is perhaps a little surprising given that SPAR, in its defence, flatly denied that the representations had ever been made. The relevant evidence given by Messrs Gale, Aplin and Sichter was in effect unchallenged during the course of the hearing. I will return to deal with this subject below.
189 The cross-claimants also relied upon a letter dated 5 September 2011 which Mr Sichter sent to Mr Costanzo at IGA. The letter was written shortly after MIS had indicated to SPAR that it was “resigning” from the franchise. The covering email to which the letter was attached records Mr Sichter as saying that MIS considered that it was “free to abandon the Franchise Agreement as we entered into it relying on assurances given by senior SPAR Management that we were free to leave upon payment of the break costs specified in the document”.
190 The letter contains the following paragraph describing MIS’s asserted reliance on assurances concerning MIS’s right to exit upon payment of termination fees (noting that, in substance, the passage largely reflects the pleaded representations):
Several meetings were held between the Directors of MIS QLD Pty Ltd and Mr Geoff Gale the Manager of SPAR Australia at that time, with Neil Cook and Ray Ruberto of SPAR also attending. These meetings took place in a coffee shop at Capalaba, the Capalaba office of one of the Directors of MIS QLD Pty Ltd and at the Cleveland Sands hotel. Prior to signing the Franchise Agreement and during these negotiations Anthony Aplin made it known that in the event of him purchasing the shares held by the other two Directors he would be converting to IGA. We were repeatedly assured by Geoff Gale that we could opt out of the Franchise on payment of the $5,500 Termination fee, plus the advertising and promotion costs and the cost of providing the services of the Retail Business Manager. The discussion was quite detailed and it was stated on several occasions by Mr Gale that the dollar figures listed in the Franchise Agreement were a maximum estimate only and that SPAR would have to prove the actual expenditure to claim it from the Franchisee. We were further reassured that no costs prior to us signing the Franchise Agreement would be recoverable by SPAR in the event that we opted out of the Franchise Agreement. Notes were taken at these meetings by Geoff Gale of SPAR and Chris Sichter of MIS QLD Pty Ltd. We still hold our notes which confirm the discussion regarding the Termination costs of the Franchise.
191 Mr Sichter signed that letter. Although it was written 9 months after the 3 December 2010 meeting, I accept that it accurately records the reliance which Mr Sichter says he placed on Mr Gale’s representations made at that meeting. As noted above, Mr Sichter also gave direct oral evidence that he decided to sign the document in the light of what Mr Gale said at that meeting concerning the means whereby MIS could exit the proposed franchise agreement.
192 Having regard to the evidence of Messrs Gale, Aplin and Sichter which I have set out above, I find that the representations set out in paragraph 14 of the statement of cross-claim were in fact made, with the following qualifications (none of which is material to the substance of this limb of the cross-claim). First, the representations made by Mr Gale were made by Mr Gale at the meeting held at the Cleveland Sands Hotel on 3 December 2010 and not in about late September 2010 as pleaded in the statement of cross-claim.
193 Secondly, there is no evidence to support the allegation that an express representation was made to the cross-claimants to the effect that, upon exiting the Franchise Agreement, the cross-claimants would not be bound by the Special Offer Agreement. But I consider that no relevant significance attaches to that fact having regard to the position that, as was made clear in the terms of the proposed special offer agreement set out in SPAR Australia’s letter dated 8 December 2010, the special offer was conditional on MIS executing a formal franchise agreement with SPAR Licensing. In other words, the Special Offer Agreement (which was executed on 14 December 2010) was inextricably tied to execution of the Franchise Agreement (which occurred initially on 8 December 2010, but then subsequently and operatively on 1 February 2011). Accordingly, it necessarily follows that if MIS lawfully terminates the Franchise Agreement, the Special Offer Agreement ceases to operate because MIS would no longer be a SPAR franchisee. In my view, cessation of the Special Offer Agreement is implicit in the representation to the effect that MIS could exit the Franchise Agreement on paying the prescribed fees.
194 For reasons given above, I consider that the cross-claimants have comfortably established that the alleged representations were in fact made (subject to the immaterial qualifications I have expressed above).
195 For completeness, it should be noted that witnesses called by SPAR (Messrs Costanzo and Carson) gave evidence concerning SPAR’s policy or practice at the relevant time addressing the situation where a franchisee wished to exit a SPAR franchise relationship. The pleaded representations were generally consistent with what could be expected under that policy or practice. I shall now summarise that evidence.
196 Mr Costanzo gave the following evidence, which I accept, regarding IGA’s conduct in persuading SPAR franchisees to convert to IGA franchisees during the period July to December 2010 (when Mr Costanzo was an employee of IGA and saw one of his duties at the time as persuading SPAR stores to convert to IGA):
(a) it was his practice to offer SPAR franchisees who were considering converting to IGA that IGA would compensate them in the form of giving credits to their accounts to cover any termination fees payable by them to SPAR if they terminated their franchise arrangements with SPAR. To his knowledge this happened with at least three SPAR stores who converted to IGA during that period (although the offer of compensation from IGA had only been taken up on one other occasion prior to the Macleay Island conversion);
(b) he made these offers of compensation because he became aware during this period that, subject to the terms of individual contractual arrangements between SPAR and its individual licensees, that was the price that SPAR required from its franchisees if they wished to terminate the franchise relationship with SPAR;
(c) he became aware of SPAR’s “policy” of requiring payment of termination fees in about July 2010;
(d) having that knowledge of SPAR’s attitude, he had a belief prior to December 2010 that SPAR would require MIS to pay it termination fees if MIS wished to terminate its Franchise Agreement with SPAR;
(e) he subsequently raised this matter with the owners of the Macleay Island store and told them that if they converted to IGA, IGA would compensate them for any termination fees and legal costs consequential upon their conversion to IGA;
(f) he knew that it would be Mr Gale who would be negotiating with the Macleay Island store on behalf of SPAR;
(g) he expected that Mr Gale would tell the Macleay Island supermarket owners that they could opt out of their Franchise Agreement with SPAR as long as they paid termination fees; and
(h) the letter of 5 September 2011 sent by MIS to SPAR claiming that Mr Gale had told them that they could get out of the Franchise Agreement on payment of certain amounts was consistent with what he expected they would have been told by Mr Gale.
197 Mr Carson gave evidence, which I accept, that:
(a) SPAR’s attitude during the relevant period was that if a SPAR franchisee tried to leave the franchise, “the price” was no more than that SPAR would seek restitution of costs for any breach and all of its staff were well aware of that fact;
(b) SPAR had adopted that attitude or approach in respect of the termination of the SPAR franchise held by the Singhs at Tweed Heads in circumstances where there was no provision in the franchise agreement permitting the franchisee to terminate; and
(c) whenever he was asked while he was chief executive officer what SPAR should do if a franchisee wanted to terminate their SPAR franchise agreement, he told his staff, including Mr Gale, that SPAR would, under the franchise agreement, seek costs for damage for breach and that those costs were as set out in the franchise agreement.
198 And further, as noted above, Mr Ruberto gave Mr Sichter a personal assurance at their meeting held on 14 September 2010 that MIS could exit the proposed SPAR franchise agreement by paying the termination and related fees. That evidence, which I accept, suggests that Mr Ruberto’s assurances reflected the policy or practice of SPAR at that time.
199 Before dealing with the next issue, it is appropriate to make some additional observations concerning the issue whether or not the alleged representations were in fact made. As I have already indicated, SPAR flatly denied that allegation in its defence. Moreover, it was never put to any of the relevant witnesses who gave evidence indicating that the representations were made (at least as a matter of substance) that their evidence was incorrect. In closing address, Mr Wylie said that he had nothing further to say in relation to the evidence on this issue, other than that the cross-claimants carried the onus of persuading me that the evidence rose to the height of the representations as pleaded in sub-paragraphs 14(a) and (b) of the statement of cross-claim. I then indicated to Mr Wylie that I would be assisted if he could indicate the basis on which his clients submitted that the evidence did not rise to that height. Mr Wylie declined to do so, saying that he was “bound by my instructions”.
200 The following exchange then occurred:
MR WYLIE: And I can only – well, if I identify the representations, the representation as pleaded is if the cross-claimants entered into the franchise agreement the first cross-respondent would agree to the first cross-respondent resigning from the conduct of the SPAR franchisor business ---
HIS HONOUR: Yes.
MR WYLIE: --- and withdrawing from the franchise agreement so that the first cross-claimant could join the IGA franchised supermarket business.
HIS HONOUR: Yes.
MR WYLIE: So the pleaded representation joins together four elements and I accept, your Honour, that there has been evidence in relation to all of those elements and I have indicated to the court that I do not put forward any additional matters or any evidence in relation to the representation. My instructions in SPARs position is that it remains for the applicant – for the cross-claimant to join the dots, as it were, to establish that all of those – that in fact a composite representation was made, as alleged.
HIS HONOUR: But you put it to me, to adopt your expression, that all the dots were not joined and I was asking you to indicate to me in what respect you say the dots were not joined. And (sic) I correct in understanding ---
MR WYLIE: I ---
HIS HONOUR: --- that your instructions are not to offer any submission on how those dots are not joined.
MR WYLIE: Yes, your Honour.
HIS HONOUR: Fine. Thank you, Mr Wylie.
201 I accept, of course, that Mr Wylie is bound by his instructions. But his instructions on this issue appear to reflect a lack of appreciation on the part of the SPAR parties as to their obligations under ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth). They were entitled to rely on the cross-claimants’ onus of establishing as a matter of fact that the representations as pleaded were made. However, in circumstances where a submission is made to the Court on their behalf to the effect that the evidence did not rise to the height of the pleaded representations, it is most unhelpful to the Court and impairs the due administration of justice if such a party instructs its Counsel to make a particular submission, but then to provide no further assistance to the Court in developing or substantiating that submission. Such conduct is difficult to reconcile with a party’s obligation to conduct proceedings in a way which is consistent with the overarching purpose of facilitating the just resolution of a dispute as quickly, inexpensively and efficiently as possible.
202 Finally, and for completeness, I should reiterate that while Mr Wylie described paragraph 14 of the statement of cross-claim as containing “a composite representation” constituted by “four elements”, I have proceeded on the basis that paragraph 14 of the statement of cross-claim should be regarded as pleading three distinct but related representations, as is reflected in the findings of fact and accompanying reasons set out above. That approach is also consistent with other paragraphs of the statement of cross-claim which, as noted above in [167], refer to “representations”.
(b) Were the representations misleading and/or deceptive?
203 For the following reasons, I find that the representations were either misleading or deceptive or both. That is because, contrary to the terms of those representations, SPAR:
(a) refused to permit the cross-claimants to exit the Franchise Agreement;
(b) sought and obtained an interlocutory injunction preventing the cross-claimant from exiting the SPAR franchise and terminating the Franchise Agreement;
(c) sought and obtained an interlocutory injunction requiring the cross-claimants to continue to be bound by the Special Offer Agreement;
(d) brought proceedings seeking an order of specific performance against the cross-claimants in relation to the Franchise Agreement and the Special Offer Agreement; and
(e) sought an order restraining MIS from acquiring goods for the conduct of its retail supermarket from any person other than SPAR until the expiration or termination of the Franchise Agreement.
204 In other words, far from permitting MIS to exit the Franchise Agreement on payment to SPAR of the relevant termination and related fees, SPAR brought these proceedings seeking (and in the case of the interlocutory relief, obtaining) orders which prevent MIS from ending its franchise relationship with SPAR and aligning itself with Metcash/IGA. Having regard to SPAR’s conduct in commencing and pursuing these proceedings which are inconsistent with the representations made by Mr Gale, I find that the representations were misleading and/or deceptive. In my view, that finding is unavoidable in circumstances where, in accordance with authorities such as Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199 per Gibbs CJ, the applicants’ conduct is viewed as a whole. The representations were made, the respondents acted upon them in the belief that they were true and the applicants then commenced proceedings directed to obtaining relief which was inconsistent with their earlier representations. The applicants’ subsequent conduct revealed that the representations were misleading and/or deceptive.
205 Mr Wylie submitted on behalf of the SPAR parties that, in determining whether conduct is misleading or deceptive, it is necessary to take into account the steps a person affected by the conduct might reasonably be expected to take to determine whether the conduct is misleading or deceptive. In support of that submission, he cited Puxu. He submitted that the cross-claimants ought to have obtained legal advice as to the meaning and effect of the proposed franchise agreement prior to signing it (as, indeed, the Disclosure Document expressly advised). Both Mr Aplin and Mr Sichter stated that they had not sought legal advice in respect of the SPAR documentation, although they had done so in relation to IGA’s proposed documentation (which Mr Sichter described as “voluminous” in comparison with SPAR’s documentation).
206 I reject SPAR’s submission on this matter for the following reasons. First, while I accept that Puxu is authority for the proposition that, in determining whether particular conduct is misleading or deceptive conduct, the conduct has to be looked at in its context and in the light of the defendant’s conduct as a whole (see, in particular, Puxu at 199 per Gibbs CJ), the case does not support the particular submission advanced by Mr Wylie in respect of the issue of obtaining legal advice.
207 Secondly, I accept that it is well established that a person’s lack of reasonable care can be a relevant consideration in determining whether conduct about which they complain is misleading or deceptive. For example, in Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 138 Hill J said:
A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant. However, in my view, the present cannot be said to be that case.
208 Thirdly, and having regard to the principle set out immediately above, I do not consider that MIS’s failure to obtain legal advice in relation to the meaning and effect of the proposed franchise agreement amounts to a lack of reasonable care on its part. Mr Wylie’s submission seemed to turn on the fact that Mr Gale had also told the MIS directors that the proposed franchise agreement was a standard document which could not be changed. But the relevant issue is whether Mr Gale’s representations concerning MIS’s right to exit the franchise relationship upon payment of the prescribed fees was misleading or deceptive having regard to SPAR’s subsequent actions in commencing these proceedings to restrain MIS from exiting the Franchise Agreement. It is difficult to see how, in these circumstances, the suggested legal advice would have been relevant to the question whether Mr Gale’s representations were misleading or deceptive or both. The misleading or deceptive nature of those representations only emerged after the Franchise Agreement was executed and the SPAR parties commenced these proceedings with a view to obtaining relief which was inconsistent with the substance of those representations. In my view, it is relevant to take into account that subsequent conduct having regard to the well established principle that alleged misleading or deceptive conduct needs to be viewed in the context of the respondent’s conduct as a whole and not simply in isolation.
(c) Were the representations relied upon by the cross-claimants?
209 As noted above, the SPAR parties submitted that the cross-claimants failed to establish that they relied upon Mr Gale’s representations with the consequence that any loss or damage suffered by MIS was not caused by that conduct (see Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 525 per Mason CJ, Dawson, Gaudron and McHugh JJ). As will emerge below, I do not accept that submission.
210 Before turning to the relevant evidence it is convenient to note that it is well established that, in this context, for the cross-claimants to recover damages or compensation under either ss 82 or 87 of the TP Act, they need only establish that the relevant representations were a cause of their consequential loss or damage, and not necessarily the only cause of such loss or damage. Accordingly, a representation need not be the sole inducement for the representee to enter into a contract, as long as it plays some part (even if it only be a minor part) in contributing to the formation of the contract (see Gould v Vaggelas (1985) 157 CLR 215 at 236 per Wilson J; Henville v Walker (2001) 206 CLR 459 at [14] per Gleeson CJ, [59]-[61] per Gaudron J, [106]-[109] per McHugh J and [163] per Hayne J; Sanguine Technology Pty Ltd v Abacus Calculators (WA) Pty Ltd [2010] FCA 279 at [215]-[216] per Lander J and De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) (2011) 200 FCR 253 at [55]-[59] per Stone J (an appeal against her Honour’s decision was dismissed: see De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) [2012] FCAFC 28)). It is well established that in addressing the issue of causation, a “common sense” approach is to be taken and the question of causation needs to be answered in the context of the particular legal framework in which it arises (see, for example, March v E & MH Stramare Pty Ltd (1991) 171 CLR 506).
211 The relevant principles concerning reliance and causation in the context of a claim for damages under s 82 of the TP Act were helpfully set out by Stone J in De Bortoli at [45]-[75] (as noted above, an appeal against her Honour’s decision was dismissed). I respectfully agree with her Honour’s statement of those principles. As her Honour pointed out, personal reliance on contravening conduct need not be established in all cases in order to provide the link between the loss suffered and the contravening conduct (see, for example, Janssen-Gilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 at 529-530 per Lockhart J). But reliance does need to be established in circumstances where, such as here, a representee is seeking damages based on a claim that it was induced by the contravening conduct to enter into a contract or other transaction. The cross-claimants presented their case on the basis that a positive decision had been made to sign the Franchise Agreement and, in those circumstances, reliance needs to be established (see the decision of the NSW Court of Appeal in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653 for a helpful analysis of the distinction between cases where an applicant is a passive sufferer of loss and cases where the applicant is not passive, but makes a conscious decision to enter into a contract or transaction to which a misrepresentation is said to be material).
212 For the following reasons, I find that the cross-claimants have established that both Mr Aplin and Mr Sichter personally relied on Mr Gale’s representations in deciding to sign the Franchise Agreement.
213 Mr Aplin gave evidence, which I accept, that he would not have signed the Franchise Agreement if Mr Gale had not told him that MIS could break the Franchise Agreement and pay SPAR the relevant exit fees. He said that this was so because he thought that in one to two years’ time he would buy out the other two MIS shareholders (Mr Sichter and Ms Ward) and then switch the store’s banner to IGA. He said he had no intention of remaining a SPAR franchisee for the full five year term because he thought that it was in the long term business interests of both himself and MIS to work with IGA, not SPAR.
214 In those circumstances it is unsurprising that Mr Aplin had a particular interest in obtaining a full appreciation, prior to signing the Franchise Agreement as both an individual guarantor and as a director of MIS, of what SPAR’s attitude would be if, having signed a franchise agreement with SPAR, MIS then wished to exit the arrangement before its term ended. His keen interest in this subject is reflected in the fact that, prior to meeting with SPAR’s representatives on 3 December 2010, Mr Aplin prepared a diary note which identified the topics which he proposed to raise at the meeting. The diary note, which was in Mr Aplin’s handwriting, included an express reference to “Break Costs?”. He clearly had that topic in mind before the meeting. Mr Aplin also gave evidence that his diary note recorded other matters which he added to the note after the meeting concluded. One of those matters was recorded in the diary note as “Term fees” (which is plainly a reference to “termination fees”). I accept that that matter was discussed at the meeting and I further accept Mr Aplin’s account of what Mr Gale said. I found Mr Aplin to be a truthful and reliable witness.
215 Under cross-examination, Mr Aplin gave further evidence, which I accept, indicating that he personally relied on the representations made by Mr Gale. Mr Aplin’s answer to a question from Mr Wylie which directly challenged his earlier evidence on reliance was as follows:
MR WYLIE: In the light of all the other matters on which you relied in making your decision, I want to put it to you that you did not, in making your decision, for your own part, to enter into the Franchise Agreement with SPAR, rely on anything that Mr Gale said to you at the meeting at the Cleveland Sands Hotel on 3 December 2010 about your ability to terminate the proposed Franchise Agreement with SPAR or what fees would be payable if you did so?---I did rely on what Mr Gale had said to me in that 3 December meeting. Beforehand, we had not been in a franchise agreement at all for a rather large period of time. I was very adamant that I wanted to go to IGA for my own sets of reasons. Considering that we had not been in a franchise agreement, had been making money, and as far as my personal plans and goals were concerned, there were only two, two and a half years left before I would be in a position to purchase the remaining shares of my business partners, I dare say that I would most definitely not have signed the Franchise Agreement and had – would have pushed through without any form of agreement or any form of incentives until I purchased the shares of my business partners. It would have been a stalemate, so to speak.
216 The “other matters” referred to in that question concern a series of considerations which were put to Mr Aplin under cross-examination as being matters which he relied upon in deciding to sign the Franchise Agreement. Mr Aplin accepted that he had also taken those considerations into account. The considerations included such matters as SPAR’s superior financial offer compared with IGA’s; Mr Jardin moving from IGA to head SPAR and the boost which that would provide to SPAR’s business; and Mr Costanzo’s statements concerning IGA’s willingness to compensate for any termination fees payable if MIS converted from SPAR to IGA in the future.
217 Although Mr Aplin accepted that he took those considerations into account in deciding to sign the Franchise Agreement, I do not consider that this is inconsistent with his other evidence to the effect that he also personally relied on what Mr Gale told him about MIS’s right to terminate the Franchise Agreement on payment of the stipulated termination fees. I accept Mr Aplin’s evidence that those representations were matters of particular significance to him and upon which he placed particular reliance, together with other considerations, in proceeding to execute the Franchise Agreement. As Mr Perry SC submitted, it is “simply inconceivable” that Mr Aplin did not rely on Mr Gale’s representations in respect of matters upon which Mr Aplin had specifically sought Mr Gale’s assurance.
218 In my view, the evidence of several witnesses made clear that Mr Aplin was the critical person on the MIS board whom SPAR needed to convince if MIS were to become a SPAR franchisee. Evidence to that effect was given not only by Mr Aplin himself, but also by Mr Sichter (see further below). Furthermore, Mr Ruberto (who, together with Mr Gale), was heavily involved in the last six months of 2010 in seeking to persuade MIS’s directors to sign a SPAR franchise agreement, said that he saw Mr Aplin as the person whom they had to persuade as he was the one who was raising a series of issues about MIS becoming a SPAR franchisee. Mr Sichter also agreed that it was “highly improbable” that MIS would become a SPAR franchisee unless all of Mr Aplin’s concerns were addressed.
219 Mr Sichter also gave evidence which indicated that he also personally relied on Mr Gale’s representations. In his oral evidence in chief, Mr Sichter stated that it was in the light of what Mr Gale said at the 3 December 2010 meeting concerning how MIS could “get out” of the proposed franchise agreement that he decided to sign that agreement. I accept that evidence.
220 Furthermore, as noted above, Mr Sichter signed the letter dated 5 September 2011 which he sent to SPAR shortly after MIS sought to resign from the SPAR Franchise Agreement. Although the letter was written almost 9 months after the 3 December 2010 meeting I accept that it accurately records Mr Sichter’s view of what was said at that meeting by Mr Gale. I also accept that the letter accurately records Mr Sichter’s personal reliance on Mr Gale’s representations. Mr Sichter impressed me as an honest and reliable witness.
221 Mr Sichter accepted under cross-examination that he had also taken into account other considerations in deciding to sign the Franchise Agreement, including his loyalty to SPAR based on their lengthy business dealings; Mr Jardin’s move to SPAR and the likely beneficial effects that would have on SPAR’s business and that, while he had some concerns about aspects of IGA’s proposed documentation, he had none with regard to SPAR’s documentation. But, as was the case with Mr Aplin, I do not consider that Mr Sichter’s reliance on a range of other considerations is inconsistent with his personal reliance on Mr Gale’s representations in deciding to sign the Franchise Agreement.
222 Other considerations, apart from Mr Gale’s representations, were taken into account by both Mr Aplin and Mr Sichter in deciding to sign the Franchise Agreement, but that does not mean that Mr Gale’s representations, upon which they both personally relied, ceased to have effect. In my view, the following observations of the Full Court in Como Investments Pty Limited (in liq) v Yenald Nominees Pty Limited (1997) ATPR 41-550 at 43,619 are apposite to the circumstances here:
The law does not consider cause and effect in the mathematical or in philosophical terms. The law looks at what influences the actions of the parties. Acknowledging that people are often swayed by several considerations, influencing them to varying extents, the law attributes causality to a single one of those considerations, provided it had some substantial rather than negligible effect. As Brennan J. said in San Sebastian Proprietary Limited v Minister administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 at 366:
“The representation must be a real inducement or one of the real inducements to engage in the conduct which occasions the loss”.
Where a representation is relevant to the decision in question, and in its nature persuasive to induce the making of that decision, it accords with legal notions of causation to hold that it has a causative effect. And where a respondent, who may be taken to know his own business, has thought it was in his interests to misrepresent the situation in a particular respect, the Court may infer that the misrepresentation was persuasive. These inferences arise from the making of the representation followed by the respondent doing the thing it was calculated to induce him to do.
223 Mr Wylie contended that, even if Mr Aplin relied on Mr Gale’s representations, Mr Sichter gave evidence that he did not have a concern about termination or exit fees. In the context of Mr Sichter being asked various questions under cross-examination concerning termination and exit fees, the following exchange occurred between he and Mr Wylie:
But if those matters had been a concern to you, you would have communicated in writing to SPAR in relation to them, wouldn’t you?--- Well, I didn’t have a concern.
Those matters didn’t concern you?--- No.
224 In my view, this evidence does not support Mr Wylie’s submission that Mr Sichter placed no reliance on Mr Gale’s representations. The nature of Mr Sichter’s lack of “concern” about the representations was not explored any further by Mr Wylie in cross-examination. In my opinion, the fact that Mr Sichter said that he did not have any concern about Mr Gale’s representations does not mean that he did not rely upon them. It seems to me that Mr Sichter’s reference to him not having any concern about Mr Gale’s representations simply reflects the fact that he accepted those representations as accurately stating SPAR’s attitude to MIS’s right to exit the franchise relationship upon payment of the prescribed fees. That is entirely consistent with Mr Sichter’s evidence regarding an earlier meeting held with SPAR’s representatives on 14 September 2010 in which Mr Ruberto gave him personal assurances that MIS could exit the franchise agreement by paying the termination and related fees (see [187] above). Mr Gale’s subsequent representations confirmed Mr Costanzo’s assurances to Mr Sichter. It is understandable, therefore, that Mr Sichter had no concerns about Mr Gale’s representations. Mr Gale effectively confirmed at the 3 December 2010 meeting the personal assurances given to Mr Sichter by Mr Ruberto at the meeting held on 14 September 2010.
225 For all these reasons, I find that both Mr Aplin and Mr Sichter personally relied on Mr Gale’s representations in deciding to sign the Franchise Agreement. I might add that, having regard to the evidence of both Mr Gale and Mr Sichter to the effect that the representations were made in the context of SPAR’s campaign to induce MIS to become a SPAR franchisee, such evidence would itself give rise to an inference that MIS relied on those representations for that purpose. There was no other evidence rebutting that inference. In particular, for reasons given above, in my view merely because Mr Aplin and Mr Sichter took into account other considerations apart from Mr Gale’s representations in deciding to sign the Franchise Agreement does not neutralise the direct or indirect evidence of reliance on those representations.
226 As noted above, MIS’s third director, Ms Ward, did not give evidence in the proceedings. Mr Wylie submitted that this attracted the principle in Jones v Dunkel. I see no scope for that principle to apply in the circumstances here. Based on the evidence I have summarised above, I find that both Messrs Aplin and Sichter relied on Mr Gale’s representations. Since they represent a majority of MIS’s board of directors and have a total shareholding of 75 per cent in MIS, their evidence provides a sufficient basis to find that MIS relied upon those representations. I reject SPAR’s contentions to the contrary.
(d) Did MIS suffer any loss or damage and, if so, is there a causal link between that loss and the representations?
227 Mr Wylie made two related submissions relevant to the cross-claimants’ claims for relief in respect of the representations. First, he submitted that the cross-claimants had failed to establish any actual loss or damage caused by the representations so as to warrant relief being granted under either s 82 or s 87 of the CC Act. Mr Wylie relied on the High Court’s decisions in Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at 14 and Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 in this regard. He submitted that, even if it be the case that MIS entered into the Franchise Agreement which created rights or obligations which were different from Mr Gale’s representations, this alone did not demonstrate that MIS had suffered any actual loss or damage. For this proposition, Mr Wylie relied on the following passage in Marks at [48] per McHugh, Hayne and Callinan JJ:
A party that is misled suffers no prejudice or disadvantage unless it is shown that that party could have acted in some other way (or refrained from acting in some way) which would have been of greater benefit or less detriment to it than the course in fact adopted. Thus, the party that is misled will have suffered loss if a chose in action which was acquired was worth less than the amount paid for it. There may well be other ways in which it might suffer loss or damage. For example, consequential loss may be suffered. But no loss of that kind was alleged in this case and, putting that kind of loss to one side, we focus only on loss said to be suffered by the making of the contract.
228 Secondly, he contended that there was a significant omission in the cross-claim, namely the absence of any pleading or evidence going to the question of what MIS would have done had the allegedly misleading or deceptive representations not been made. Mr Wylie submitted that there was no pleading of reliance relating to MIS entering into the Franchise Agreement and that there was “no pleading or evidence of any causal link between the representations and the loss or damage which is asserted”.
229 For the following reasons, I reject both those submissions. Although they seem to be related, it is convenient to deal with the two issues in turn.
230 Mr Wylie submitted on behalf of the SPAR parties that MIS’s claim that it suffered a loss in not being able to convert to the IGA banner from 1 September 2011 was based on an assumption of a one-off sales increase in the range of 10 to 30 per cent if MIS converted to IGA. He contended that this was an unproven assumption. It was common ground that the 10 per cent figure in this assumption underpinned the evidence of both Mr Aplin and MIS’s independent expert, Mr Stuart Benjamin, in their assessments of MIS’s loss or damage. Mr Aplin made clear that he adopted Mr Costanzo’s advice that MIS could have that expectation. Mr Benjamin accepted under cross-examination that the level of damages he assessed was “fundamentally dependent on the level of growth in sales on conversion to IGA”. He accepted that if a projected increase in sales within that range was not made good, MIS would not suffer any loss at all. Mr Benjamin also accepted under cross-examination that he did not undertake any comparison of the performance of the MIS store as an IGA store as opposed to how it would have performed if it had remained as a SPAR store. Rather he proceeded on the basis of an assumption that conversion to IGA would produce a one-off sales increase in the projected range described above.
231 Mr Wylie referred to, and relied upon, the expert evidence given by SPAR’s independent expert, Mr Peter Haley, who concluded that MIS had not established that it suffered any loss or damage if it continued to be supplied by SPAR, save for the asserted one-off increase in gross sales, if MIS switched to IGA, an assertion which Mr Haley also criticised (see further below).
232 Before considering the parties’ competing evidence relating to MIS’s alleged loss, it is convenient to record that I accept that MIS cannot recover damages under s 82 of the CC Act unless it establishes on the balance of probabilities that it has suffered an actual loss which is attributable to the cross-respondents’ conduct (see I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 at [45] per Gaudron, Gummow and Hayne JJ). I also accept that, if the Court finds that an actual loss has occurred, it must then do its best to quantify the loss even if a degree of speculation and guesswork is involved in that subsequent exercise. But that exercise only arises if the Court is satisfied on the balance of probabilities that MIS has suffered loss or damage by reason of the cross-respondents’ contravening conduct (see Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 at 182-184 per Sheppard, Morling and Wilcox JJ and Williams and Hodgson Transport Pty Ltd v Castlemaine Tooheys Ltd (1985) 64 ALR 521 at 533 per Wilcox J).
233 For completeness, I should also record that I accept that there is a significant difference between ss 82 and 87 in that, while actual loss or damage has to be established in order to recover damages under the former provision, under the latter various forms of relief may be granted where loss or damage is likely to be suffered (see Wardley Australia at 526-527 per Mason CJ, Dawson, Gaudron and McHugh JJ).
234 I shall now deal with the parties’ competing evidence relating to MIS’s claim that it suffered loss or damage flowing from its inability to convert to IGA from the period 1 September 2011.
235 Mr Aplin gave evidence in the form of a witness statement dated 25 April 2012 as to that claim and he gave an assessment of the quantum of that loss. In his witness statement, Mr Aplin set out in some detail the methodology he used in quantifying MIS’s net loss during the two relevant periods. As to the first period (i.e. 1 September 2011 to 1 December 2011), after allowance was made for MIS’s costs of doing business during that period, Mr Aplin assessed its loss as a loss in net profit of $12,715.39. As to the second period, which primarily related to MIS’s lost opportunity of participating as an IGA franchisee for the period from 1 December 2011 to 1 February 2016, after allowing for MIS’s costs of doing business, Mr Aplin assessed MIS’s loss in terms of a lost net profit of $212,808.14.
236 SPAR objected to some aspects of Mr Aplin’s witness statement, but did not challenge his methodology. Nor did SPAR raise any general objection to Mr Aplin giving opinion evidence notwithstanding that his witness statement did not comply with the Court’s expert protocol. But SPAR took a specific objection to paragraph 5(a) of the witness statement. That paragraph is part of Mr Aplin’s calculation of the net profit he assessed would have been made by MIS if it had traded under the IGA banner. Mr Aplin’s evidence was that, in undertaking his loss assessment, he relied on what Mr Costanzo had told him when Mr Costanzo was at IGA and sought to persuade Mr Aplin to convert the store to IGA. He said that Mr Costanzo told him that MIS could expect an increase of between 10 to 30 per cent in gross sales if it switched to IGA. Mr Aplin used the figure of 10 per cent i.e. at the bottom of that range, in assessing MIS’s loss.
237 SPAR raised two objections to paragraph 5(a) of Mr Aplin’s witness statement. The first was a hearsay objection. The second was an opinion objection, which was directed not at Mr Aplin’s qualifications or expertise, but rather at Mr Costanzo’s opinion (which was embodied in his representation to Mr Aplin that MIS could expect a one-off increase in gross sales in the range of 10 to 30 per cent if it converted to IGA). I understood the reference to Mr Costanzo’s opinion to be a reference to the inference which Mr Costanzo drew from observed and communicable data relating to the sales performance of stores which had switched to the IGA banner (on the meaning of “opinion”, see Allstate Life Insurance Co v Australia New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73 at 75 per Lindgren J).
238 I disallowed SPAR’s hearsay and opinion objections to Mr Aplin’s witness statement (save for that part of paragraph 5(a), which made reference to information being provided to Mr Aplin by unidentified former SPAR franchisees who had converted to IGA). I rejected the hearsay objection, relying upon s 64(3) of the Evidence Act 1995 (Cth) in circumstances where the representor, Mr Costanzo, had been called as a witness by SPAR. In my view, as the law stands at present (and in my view it was not demonstrated to be clearly wrong), that exception to the hearsay rule applies where the asserted fact involves a representation in the form of an opinion as to the existence of a fact (see Ringrow Pty Ltd v BP Australia Ltd (2003) 130 FCR 569 at [18] per Hely J; Australian Securities and Investments Commission v Rich (2005) 216 ALR 320 at [206] per Austin J; Connex Group Australia Pty Ltd v Butt [2004] NSWSC 379 at [3] per White J; Investmentsource Corporation Pty Limited v Knox Street Apartments Pty Limited [2007] NSWSC 1128 at [19]-[21] per McDougall J; Australian Competition and Consumer Commission v Cement Australia Pty Ltd (No 3) [2010] FCA 1131 at [96]-[97] per Greenwood J; Land Enviro Corp Pty Limited v HTT Huntley Heritage Pty Limited [2012] NSWSC 177 at [95] per Stevenson J and, see generally, the recent inconclusive doubts expressed as obiter dicta in Lithgow City Council v Jackson (2011) 244 CLR 352 at [17] per French CJ, Heydon and Bell JJ). SPAR had an opportunity to adduce evidence from Mr Costanzo (SPAR’s own witness) regarding what Mr Aplin said he told him. SPAR never availed itself of that opportunity. (It might also be noted, for what it is worth, that SPAR never put to Mr Aplin that his evidence concerning what Mr Costanzo had told him was wrong).
239 As to SPAR’s opinion objection, SPAR clarified in oral argument that the objection related to Mr Costanzo’s opinion which was encapsulated in what he told Mr Aplin about MIS’s expectation of a one-off increase in gross sales if it switched to the IGA banner. Mr Kirby (who appeared with Mr Wylie on behalf of the SPAR parties) submitted that Mr Costanzo’s opinion was itself hearsay and that, accordingly, “the objection could probably stop there”. This submission was made against the background of SPAR’s written list of objections to evidence challenging paragraph 5(a) of Mr Aplin’s statement on the basis of “hearsay and more remote hearsay of otherwise inadmissible lay opinions”.
240 I have set out my reasons above for rejecting the hearsay objection. For completeness, and to the extent that Mr Kirby pressed SPAR’s objection to Mr Costanzo’s opinion (noting that this objection was not developed any further by him in oral argument), I also reject that objection having regard to Mr Costanzo’s lengthy history in the Queensland supermarket industry and his considerable practical and specialised knowledge and experience of the operations of both IGA and SPAR franchised stores, including stores which he had successfully converted from SPAR to IGA during the second half of 2010 (see s 79 of the Evidence Act). I shall now outline the evidence which I consider sufficiently establishes Mr Costanzo’s extensive practical knowledge and experience of the Queensland supermarket industry.
241 Mr Costanzo has had a long involvement in the Queensland supermarket industry. He is a fourth generation retailer, having owned and operated his own supermarket in the period around 2000. In April 2000 he took up employment with a company called Australian United Retailers, which later became known as FoodWorks. He worked there for approximately 6 years and, for the last 12 months of his employment there, he held the role of network development manager. In October 2006, Mr Costanzo moved to IGA. He held the position there of external banner manager, with responsibility for IGA’s supply to non-IGA bannered stores in Queensland. His “primary” or “major” focus was to grow the IGA network by having stores convert to IGA. That necessarily brought him into contact with many stores, not only within the IGA chain, but also within those two rival chains which he targeted. There was extensive oral and written evidence highlighting Mr Costanzo’s heavy involvement in seeking to persuade rival stores to switch to the IGA banner. For the last 12 to 18 months of his employment with IGA, Mr Costanzo was also one of IGA’s senior property development managers, whose function was to build new IGA stores and find new retailers to occupy them. During this time he continued his role of converting rival stores to the IGA banner.
242 It is also evident that Mr Costanzo had knowledge of the Macleay Island store, not the least from his involvement during 2010 in seeking to persuade MIS to convert to IGA. He had many discussions with Mr Aplin on that subject and it was Mr Costanzo who signed IGA’s letter of offer to MIS dated 13 September 2010 concerning its conversion to IGA.
243 SPAR tendered in evidence a series of emails prepared by Mr Costanzo in August 2010 (while he was at IGA) in which he identified various rival stores whom he targeted for conversion to IGA. In one such email, which included a spreadsheet specifying 20 targeted SPAR stores, Mr Costanzo said that he personally knew all those retailers and had had some dealings with them in the past and that he wished to be involved in the attempts to have them convert to IGA. The main two groups he sought to convert to become IGA bannered stores were stores aligned with SPAR or FoodWorks. It was also evident that Mr Costanzo enjoyed some success in successfully converting SPAR branded stores to IGA. Under cross-examination he said that he had successfully converted a minimum of 6 such stores in the period July to December 2010. He left IGA in December 2010 to take up a position with SPAR Australia as state manager for Queensland.
244 In my view, some significance should also attach to the fact that there was other evidence which supported Mr Costanzo’s estimate that stores converting to IGA could expect to experience an increase in gross sales in the range 10 to 30 per cent. SPAR tendered a letter dated 24 August 2010 on IGA’s letterhead and signed by IGA’s general manager, Peter Love, which contained the following statement:
Stores that have converted to IGA over the past few years have all enjoyed a sales increase of over 15%, with many stores more than doubling this increase.
245 Mr Costanzo was clearly familiar with the contents of that letter. He forwarded a copy of it to Mr Love on 13 September 2010, confirming in the attached email that the letter had been sent to 28 SPAR stores. Mr Costanzo explained to Mr Love (who was his superior) that the letter was part of an entire program adopted by IGA to persuade SPAR stores on the “hit-list” to convert to IGA. The letter was admitted into evidence without objection.
246 In support of its claim for damages, MIS also relied on a report dated 26 April 2012 by Mr Stuart Benjamin, a chartered accountant and director of Lytras & Benjamin. Mr Benjamin gave evidence as an expert quantifying MIS’s loss as a result of it being unable to convert to the IGA banner from 1 September 2011. His loss calculations were divided into two periods. The first period was between 1 September 2011 and 30 April 2012 (being the estimated date of the trial). The second period was between 1 May 2012 and 1 February 2016 (being the balance of the term of MIS’s franchise agreement with IGA). In estimating MIS’s losses during each of those periods, Mr Benjamin used three different figures, each reflecting an assumption made by him that, if MIS had converted to IGA, it would have enjoyed an increase in sales revenue of 10 per cent, 15 per cent or 30 per cent. Those assumptions were based in part upon paragraph 5(a) of Mr Aplin’s witness statement dated 25 April 2012, which as noted above was based on what Mr Aplin had been told by Mr Costanzo (the SPAR parties challenged those parts of Mr Benjamin’s report which relied on Mr Costanzo’s representations to Mr Aplin, but the objection was overruled as described above). Using a figure of a 10 per cent increase in sales revenue, Mr Benjamin estimated that MIS’s total net loss for the period from 1 September 2011 to 30 April 2012 was $21,172.00. Using that same figure of 10 per cent, he estimated that MIS’s total net loss for the period 1 May 2012 to 31 January 2016 was $73,204.00. Thus Mr Benjamin’s opinion was that MIS’s total net loss for both periods was $94,376.00.
247 Mr Benjamin said that the basis of his use of the 10 per cent to 30 per cent range was both:
(a) paragraph 5(a) of Mr Aplin’s witness statement dated 25 April 2012; and
(b) the statement in IGA’s letter dated 24 August 2010, to the effect that stores which had converted to the IGA brand over the past few years had all enjoyed a sales increase of over 15 per cent, with many stores more than doubling that increase.
248 Mr Benjamin adopted a four stage methodology in forming his opinions. First, he set out the background facts to the proceedings. As Mr Perry SC submitted, those facts were largely uncontested except for the benefits which MIS said it expected to enjoy from switching to the IGA brand (including increased sales revenue as a result of higher brand awareness, generic product range and more competitive promotional pricing). Secondly, Mr Benjamin set out the assumptions he had made in forming his opinions, which included adopting that part of Mr Aplin’s statement concerning an expectation that converting to the IGA banner would produce an increase in gross sales in the range of 10 to 30 per cent. Thirdly, Mr Benjamin calculated MIS’s damages by carrying out a number of steps as described by him in paragraphs 5.1 to 5.18 of his report dated 26 April 2012. Finally, Mr Benjamin set out his detailed calculations leading up to his conclusions concerning MIS’s loss and damages.
249 For the purposes of the cross-claim, the SPAR parties relied on a report in reply dated 7 May 2012 by Mr Peter Haley from Vincents Chartered Accountants. Mr Haley primarily responded to Mr Benjamin’s report dated 26 April 2012, but he also commented to a lesser extent on Mr Aplin’s witness statement. Mr Haley questioned the assumptions made by both Mr Aplin and Mr Benjamin that MIS would enjoy a one-off increase in sales if MIS switched to IGA. Mr Haley said that that assumption should not be made unless there was material identifying which particular stores had experienced such sales growth on converting to IGA. He also said that it was necessary to consider whether the Macleay Island MIS store in particular could have experienced such an increase and whether other factors contributed to the increases achieved by other stores converting to IGA.
250 Mr Haley said that, in his opinion, there was range of possible factors that might operate to increase the sales of any particular store on converting to another banner, including such matters as:
(a) whether the product offering would change and become more attractive;
(b) whether the increased sales would be driven by an increase in sales across the product range or be confined to low margin items;
(c) whether the increased sales would be driven by an increase in prices;
(d) whether the store would become more attractive to customers as a result of lower prices;
(e) whether the store has the demographic and geographical attachment to support such an increase in sales, bearing in mind that the Macleay Island store’s catchment was limited to island residents and could not realistically draw on customers outside its immediate catchment area;
(f) whether the customer catchment area is expecting any increase in population;
(g) the history of the particular store, including Mr Haley’s view that in the calendar year 2011 the Macleay Island store achieved increase in sales of 14.3 per cent over its sales in 2010 while acquiring its dry groceries from SPAR;
(h) whether the other stores which enjoyed an increase in gross sales upon converting to IGA also undertook a refurbishment or expansion at the time of their conversion, in circumstances where the Macleay Island store recently undertook a refurbishment which may have contributed to its 14.3 per cent increase in sales in 2011; and
(i) whether the other relevant stores contributing to the 10-30 per cent range undertook a “marketing blitz” upon conversion.
251 Mr Haley’s evidence was that, based on his experience of valuing supermarkets, sales uplifts do not result from simply a change of banner or name.
252 A Joint Statement of Experts dated 9 May 2012 was also tendered in evidence. It recorded the outcome of a conclave between Mr Benjamin and Mr Haley and identified their points of disagreement. The most material point of disagreement related to Mr Benjamin’s assumption that there would be an increase in sales revenue in the range 10 to 30 per cent if MIS converted to IGA. Mr Haley reiterated his criticism of that assumption as set out in paragraph 2.7 of his report in reply dated 7 May 2012. He also added that he doubted that there was any capacity for MIS to increase its sales if it switched to IGA having regard to Macleay Island’s socio-economic demographics and his belief that “the vast majority of the immediate population are currently customers thereby suggesting there is little potential to increase sales by attracting more of the local population”.
253 In the Joint Statement of Experts, Mr Benjamin accepted that the likelihood of an expected increase in sales revenue was not a matter within his expertise. He described it as “an operational and/or marketing matter”. In other words, Mr Benjamin implicitly reiterated that he relied on Mr Aplin’s evidence and IGA’s letter dated 24 August 2010 in adopting and applying that range of figures.
254 Mr Aplin did not participate in the experts’ conclave and, as noted above, the SPAR parties did not challenge his qualifications to express opinions on the quantification of MIS’s loss. He was, however, cross-examined by Mr Wylie as to his adoption of Mr Costanzo’s range. Mr Aplin rejected the proposition that he personally did not believe that there would be an uplift of sales in that range. He also rejected the proposition that he did not have any basis for a projected increase in sales of 10 to 30 per cent if MIS moved to IGA other than what Mr Costanzo told him. Mr Aplin’s response to that proposition was as follows:
Well, I think there’s – there’s other factors at play, like brand awareness and price perception of consumers in our market. That would, in my view, be other factors that would indicate that I – I could expect an increase to justify the values that were given to me by John Costanzo. Price perception of the supermarket on Russell Island with our residents is quite – quite keen. People think that that store is very competitively priced. So aligning myself with – with the same banner would go a long way in giving people the same perception of price. Therefore, you know, I believe that we would anticipate that – that form of increase.
255 I accept that evidence. As noted above, I found Mr Aplin to be an honest and reliable witness. In attaching particular weight to Mr Aplin’s evidence on these matters, I also take into account his extensive knowledge of, and involvement in, the retail supermarket industry in Queensland. Not only was he deeply involved in the operations of the MIS store on Macleay Island for the last few years, but he also had experience in the late 1990s through to 2002 in managing IGA stores in Rockhampton, Bundaberg, Loganholme and Thornlands. In the period 2002 to 2009 he was not directly involved in the operation of any IGA stores because he was then working as a systems consultant for Scanning Systems Australia (a business owned by Metcash which provided software and related services to independent grocery stores), but he gave evidence that, during that period, he had contact day-to-day contact with IGA retailers and provided advice on their retail systems and the technology aspects of their business. Under cross-examination he said that he had “a very good knowledge of how IGA operated at store level”. He also said that he had worked as an employee at SPAR supermarkets.
256 In his witness statement dated 25 April 2012, Mr Aplin also described what he saw as the benefits of MIS converting to IGA. Paragraphs 19 and 20 of Mr Aplin’s statement were as follows:
One of the benefits that MIS would obtain if converted to an IGA supermarket is the benefit of IGA group buying discounts. Various supplies to IGA known as charge-back suppliers offer more favourable trading conditions than the comparable SPAR suppliers. If MIS was an IGA store it could purchase directly from these charge-back suppliers at these more favourable trading conditions. I did not factor this benefit into the ‘Purchase Price Comparison’ spreadsheet referred to above.
Another benefit that MIS could obtain if it was an IGA supermarket is the benefit of IGA special promotional buying which because of the volume of purchases that IGA makes, results in lower supply costs to franchisees than are available from SPAR. An example is Bulla ice-cream which has been available from IGA for $2.99 to IGA franchisees but has never been available from SPAR to MIS for less than $3.99 per unit. I did not factor this benefit into the ‘Purchase Price Comparison’ spreadsheet referred to above.
257 I admitted that evidence over SPAR’s objections. The basis for those objections was conclusion and opinion. In rejecting the objections I draw attention to the fact that, apart from it being general industry knowledge, evidence had been led in the proceedings that the larger wholesalers or integrated supermarket chains are able to take advantage of their greater scale and volume in order to provide higher rebates to their customers.
258 I accept Mr Aplin’s evidence on these matters, which provides some further support for his acceptance of Mr Costanzo’s advice that there would be a one-off increase in sales revenue if MIS switched to IGA and his adoption of the figure at the bottom of that range.
259 As noted above, Mr Wylie submitted that the cross-claimants had failed to establish any actual loss or damage in respect of this limb of their cross-claim concerning Mr Gale’s representations. He said that that alone was sufficient to refuse relief under either or both ss 82 or 87 of the CC Act. He further contended that, even if some loss or damage was found, the Court should exercise its discretion under s 87 and not order any relief against his clients in circumstances where MIS “obtained a financially beneficial arrangement from SPAR on the basis of entry into a five year agreement, and continued to trade successfully throughout the period following, and up-following (sic) the representations and to date”.
260 Mr Wylie submitted that there was no evidence underpinning the assumptions adopted by both Mr Aplin and Mr Benjamin that there would be an increase of gross sales in the range of 10 to 30 per cent if MIS converted to IGA. Mr Wylie also submitted that I should give no weight to Mr Benjamin’s evidence because he failed to make any allowance for the fact that MIS had increased its sales revenue during both 2010 and 2011 while sourcing supplies from SPAR and that his calculations had been made on the basis of a zero base.
261 For the following reasons, I reject those submissions. First, as noted above, I overruled SPAR’s objections to that part of Mr Aplin’s witness statement which made reference to him taking into account Mr Costanzo’s advice to him that MIS could expect an increase in gross sales in the range of 10 to 30 per cent. Mr Aplin was content to adopt and apply the bottom figure in that range in estimating MIS’s loss. He concluded that MIS had suffered a net loss of $12,715.39 for the period 1 September 2011 to 1 December 2011. I accept Mr Aplin’s evidence. I also accept Mr Benjamin’s evidence that MIS suffered a financial loss by not being able to switch to IGA from 1 September 2011 up until 30 April 2012. As noted above in [246] Mr Benjamin quantified that net loss for the longer period as $21,172.00.
262 Secondly, I consider that IGA’s letter dated 24 August 2010 provided additional support for Mr Costanzo’s advice to Mr Aplin that there would be a one-off increase in gross sales of at least 10 per cent if MIS switched to IGA. That letter was tendered by SPAR. As noted above, that letter (which was sent to 28 SPAR stores whom IGA was targeting), contained a representation from IGA’s general manager to the effect that all stores which had converted to IGA over the past few years had enjoyed a sales increase of over 15 per cent, with many such stores more than doubling that increase.
263 Thirdly, I do not accept Mr Wylie’s submissions that no weight should attach to Mr Benjamin’s evidence, taking into account Mr Haley’s criticisms of it. Mr Haley’s evidence did not establish that there would be no increase in gross sales in the range of 10 to 30 per cent if MIS switched to IGA. Rather, the burden of Mr Haley’s evidence was to the effect that more detailed information was required in order to determine whether the range identified by both Mr Costanzo and also in IGA’s letter dated 24 August 2010 was applicable to the Macleay Island store. Among the matters he said should be considered was whether MIS could achieve another large one-off increase in sales in circumstances where it had achieved an increase in sales in both 2010 and 2011 when it was acquiring dry groceries from SPAR. Mr Haley added that Mr Benjamin had also not made any discount for risk that the expected one-off increase in sales would not occur. But while he said that the effect of allowing for such risk “could be substantial”, he nevertheless opined that “the risk attaching to the achievement of a 30 per cent increase is certainly greater than the risk attaching to the achievement of a 10 per cent increase in sales”.
264 In my view, while there is some force in some of Mr Haley’s criticisms, I do not consider that those criticisms warrant rejection of the entire range of the projected one-off increase in sales on conversion to IGA. They do cast doubt, however, on the reliability of the top figures in that range. But I do not regard those criticisms as undermining reliance on the figure which is at the bottom of Mr Costanzo’s range. That is particularly the case where that figure is supported by IGA’s letter dated 24 August 2010, as well as by Mr Aplin’s evidence under cross-examination as to why he personally believed that there would be an uplift of at least 10 per cent if MIS switched to IGA.
265 For all these reasons, therefore, I find that MIS has established on the balance of probabilities that it did suffer an actual financial loss consequential upon its inability to operate as an IGA franchisee from 1 September 2011. As to the quantum of that loss, I accept Mr Aplin’s evidence that the net loss was $12,715.39 for the period 1 September 2011 to 1 December 2011. I also accept Mr Benjamin’s evidence that MIS’s net loss for the period 1 September 2011 to 30 April 2012 was $21,172.00 (based on a one-off 10 per cent increase in sales). For reasons which I set out below, it is unnecessary to make any finding as to MIS’s loss outside those periods.
(ii) Causal link between the representations and MIS’s loss or damage
266 As noted above, SPAR also contended that the cross-claim was deficient because there was no pleading or evidence relating to reliance and what MIS would have done if the representations made by Mr Gale had not been made. Mr Wylie submitted that the cross-claim was conducted on the basis that, if MIS’s directors had known that Mr Gale’s representations were misleading or deceptive, they would not have signed the Franchise Agreement. Mr Wylie contended, however, that there were three realistic possibilities, namely:
(a) the Franchise Agreement would not have been signed (he accepted that that was a realistic possibility for present purposes);
(b) MIS would have signed a relationship deed or alliance agreement with IGA (or its parent company, Metcash); or
(c) since the three MIS directors held different views, no decision would have been made to sign up with IGA and MIS would have continued to be supplied by SPAR without any franchise agreement.
267 For the following reasons, I reject those submissions. First, as to the pleading point, I consider that the cross-claimants adequately pleaded reliance in:
(a) paragraph 15 of the statement of cross-claim, by reference to their acting in reliance upon the truth of the representations described in [14] and being induced thereby to enter into the Special Offer Agreement, the Franchise Agreement and providing guarantees in respect of the Franchise Agreement; and
(b) paragraph 18(d), which expressly pleads that MIS had lost the opportunity to join the IGA franchised supermarket business and suffered consequential loss.
268 Secondly, I reject SPAR’s submission that there was no evidence concerning what MIS would have done if Mr Gale’s representations had not been made. Both Mr Aplin and Mr Sichter made clear that unless Mr Aplin was satisfied that MIS could extricate itself from the Franchise Agreement when he bought out the other two shareholders, he would not have agreed with his co-directors to sign the Franchise Agreement. And in the passage set out above in [215] from Mr Aplin’s evidence under cross-examination, Mr Aplin said that, if the representations had not been made, he would definitely not have signed the Franchise Agreement. Thus a “stalemate” would have been created because he “would have pushed through without any form of agreement or any form of incentives until I purchased the shares of my business partners”.
269 Mr Sichter gave unambiguous evidence that, without Mr Aplin’s concurrence, MIS would never have entered into the Franchise Agreement. Although Mr Sichter did not give direct evidence as to what he would have done if Mr Gale’s representations had not been made, it can be inferred that he would have adopted a similar position to that of Mr Aplin, namely to continue to obtain supplies from SPAR but not under any franchise arrangement. That is because Mr Sichter expected that Mr Aplin would buy out the other shareholders in a few years time and wanted to be in a position at that time to become an IGA franchisee. I accept that Mr Sichter was loyal to SPAR and did not have any concerns about the proposed SPAR franchise agreement, but I do not believe that he would have persuaded Mr Aplin to sign the proposed SPAR franchise agreement if Mr Gale had not made the representations. Mr Aplin was adamant that he would not have done so. Furthermore, I consider that Mr Sichter would have gone along with Mr Aplin and simply continued to obtain dry groceries from SPAR outside a franchise arrangement until such time as Mr Aplin acquired all the shares in MIS.
270 I do not consider that any significance attaches to the fact that Ms Ward did not give evidence. I adopt and repeat the reasons set out in [226] above.
271 In the light of my findings above upholding the second limb of the cross-claim, the issue arises as to what relief should be given. Mr Perry SC clarified in closing address that the relief sought in respect of the cross-claim was:
(a) a declaratory order to the effect that the cross-respondents engaged in misleading and deceptive conduct and thereby contravened s 18 of the Australian Consumer Law;
(b) a declaratory order pursuant to s 87 of the CC Act declaring the Franchise Agreement and Special Offer Agreement to be void;
(c) if an order was made in accordance with paragraph (b) immediately above, the cross-claimants’ claim for damages was limited to the period 1 September 2011 until the date of judgment and that the quantum of that loss is as assessed by Mr Benjamin; and
(d) in the alternative to (b), if the Franchise Agreement and Special Offer Agreement were not set aside, the terms of the Franchise Agreement should be varied so as to reflect Mr Gale’s representations, namely that MIS could terminate the Franchise Agreement on payment of the specified termination and related fees.
272 As noted above, Mr Wylie submitted that, even if the Court was satisfied that MIS had suffered actual loss or damage, it ought not in the exercise of its discretion make any order pursuant to s 87 of the CC Act. The basis for that submission was said to be the circumstances that MIS had obtained what was described as “a financially beneficial arrangement from SPAR” based upon it entering into the Franchise Agreement and that MIS continued to trade successfully from the date of the Franchise Agreement. Mr Wylie also accepted that, if the Court found in favour of the cross-claimants in respect of the second limb of their cross-claim, it was appropriate to make a declaratory order to the effect sought by the cross-claimants.
273 For completeness I should also record that in view of the findings I have made concerning the cross-claim, the applicants’ contract claim cannot succeed. That is because the cross-claimants have succeeded in having the terms of the Franchise Agreement varied ab initio so as to reflect Mr Gale’s representations concerning the right of MIS to terminate the Franchise Agreement upon payment of the relevant termination and related fees. Accordingly, no breach of contract occurred when MIS’s conduct was consistent with the terms of the varied contract.
274 In my view, the cross-claimants are entitled to receive some, but not all, the relief they seek in respect of the second limb of their cross-claim. In particular, I consider that this is an appropriate case in which to grant the following relief:
(a) a declaratory order as sought by the cross-claimants concerning the cross-respondents’ contravention of s 18 of the Australian Consumer Law;
(b) an order under s 87 of the CC Act varying the Franchise Agreement and related Special Offer Agreement ab initio so as to reflect Mr Gale’s representations;
(c) an order that SPAR Licensing pay damages in respect of MIS’s loss for the period 1 September 2011 to the date of judgment, plus interest; and
(d) an assessment will also need to be made of the quantum of the termination and related fees payable to SPAR upon MIS terminating those agreements.
Conclusion
275 I consider that the appropriate course is to require the parties to confer and seek to agree terms of orders reflecting my reasons above. The orders should deal with at least the following matters:
(a) discharging the interlocutory injunction;
(b) dismissing the applicants’ amended originating application filed 10 February 2012;
(c) the quantum of damages, together with interest, payable to the cross-claimants;
(d) the terms of the declaratory orders concerning the contraventions of s 51AD of the TP Act and s 18 of the Australian Consumer Law and the consequential variations to the terms of the Franchise Agreement and Special Offer Agreement;
(e) the quantum of the termination and related fees which MIS is liable to pay upon exiting the Franchise Agreement and Special Offer Agreement; and
(f) costs (my tentative view is that the applicants should bear the respondents’ costs of both the amended originating application and the cross-claim).
276 In the event that the parties cannot agree on the formulation of the orders, each should prepare its own draft of the proposed orders and the matter will be re-listed for further argument. Accordingly, if agreement is not achieved on the terms of the proposed orders within 7 days hereof, I direct:
(a) the respondents to file and serve its draft orders, together with a brief outline of their written submissions within 14 days hereof;
(b) the applicants to file and serve their draft orders, together with a brief outline of their written submissions within 21 days hereof; and
(c) any written submissions in reply by the respondents should be filed and served within 28 days hereof.
277 In due course, the parties will be notified of the date for the re-listing of the matter.
I certify that the preceding two hundred and seventy-seven (277) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths. |
Associate:
