FEDERAL COURT OF AUSTRALIA

Pampered Paws Connection Pty Ltd (on its own behalf and in a Representative Capacity) v Pets Paradise Franchising (Qld) Pty Ltd (No 11) [2013] FCA 241

THE COURT DECLARES THAT:

1.    The first respondent, in offering to supply services to the first applicant, being the right to operate a Pets Paradise franchise on condition that it accept from time to time Allocated Stock from the fourth respondent and do pay the fourth respondent for such stock, up to 30 December 1996, engaged in the conduct of exclusive dealing contrary to s 47(1) of the Trade Practices Act 1974 (Cth) as then in force (now in an amended form s 47(1) of the Competition and Consumer Act 2010 (Cth)).

2.    The fourth respondent and the eighth respondent counselled and procured and were directly knowingly concerned in the said contravention.

THE COURT ORDERS THAT:

3.    Subject to Orders 4 to 10 hereof, the claims of the applicants otherwise be dismissed.

4.    Subject to Order 5 hereof, the proceeding no longer continue as a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth).

5.    Notwithstanding Order 4 hereof, any person or entity previously falling within the description of a Group Member, namely a present and former Pets Paradise franchisee from one or other of the first, second or third respondents, may by notice of motion issued no later than 1 July 2013 and duly served on the respondents apply to be an individual applicant in this proceeding, accompanied by the proposed statement of claim of that person or entity, such notice of motion to be returnable before the Court at 9:15 am on 11 July 2013.

6.    The application in Supreme Court of Victoria Matter SCI D6019 of 2009, cross-vested to this Court and constituting the cross-claim of the first respondent be stood over for further directions at 9:15 am on 11 July 2013.

7.    The respondents file and serve the terms of their proposed order for costs, and their submissions in support of that order, by 3 May 2013.

8.    The applicants file and serve the terms of their proposed order for costs, and their submissions in support of that order and in response to the respondents’ submissions by 14 June 2013.

9.    The respondents file and serve any submissions strictly in reply to the applicants’ submissions by 28 June 2013.

10.    There be liberty to any party to apply to vary Orders 5 to 9 hereof on reasonable notice.

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

REASONS FOR JUDGMENT

1    I delivered reasons for judgment in this complex matter on 27 January 2012: Pampered Paws Connection Pty Ltd v Pets Paradise Franchising (Qld) Pty Ltd (No 10) [2012] FCA 25 (the first judgment). In the light of the first judgment, there were a number of matters on which the parties were invited to make further submissions, or in some instances to call further evidence. That process has now been completed.

2    This judgment addresses the issues outstanding following the first judgment. I shall adopt the same descriptions of the parties, the legislation, and the particular claims as in the first judgment without repeating them, as it is necessary in any event to refer to the first judgment for the context and full understanding of these reasons. I will also not repeat in this judgment much of the background, and findings, there made. I shall do so only to the extent it is desirable to make these reasons for judgment clear. But these reasons must be read as adopting, and following on from, the first judgment.

The Outstanding Issues

3    In the first judgment at [24], I set out a very brief list of the claims of Pampered Paws, Ms Donnelly and Ms Campbell. In the light of the first judgment, the following issues remain to be addressed:

(1)    Whether the Recurring Payments Representation addressed in the first judgment at [150]-[167] was relied upon by any of the applicants, so as to have caused loss or damage to any of them, and if so the extent of that damage or loss, and what, if any, specific remedy should be ordered for that contravention. I noted at [272] that the evidence did not focus on the particular significance of that representation, to the extent to which it was found to have been misleading and deceptive.

(2)    Whether any of the applicants have suffered loss and damage as a result of PPQ contravening s 47(1) of the TPA, and certain provisions of the FCC. The parties agreed prior to the first judgment that that question should be stood over, and that they have the opportunity to adduce evidence in relation to it. It was also common ground, correctly so, that the contravention ceased at 31 December 2006 when an amendment to the TPA came into force: see first judgment at [221]. The nature and extent of any relief for those contraventions remains to be addressed, as does the question of which of the respondents should be made accountable for any such relief.

(3)    Whether the Unpaid Labour Claim of Ms Donnelly and Ms Campbell should succeed having regard to the finding about that claim in the first judgment at [262]-[265].

(4)    How the proceeding in Supreme Court of Victoria Matter SC1 D6019 of 2009 (the Cross-Vested action) should be resolved in the light of the first judgment, and the orders to be made in relation to the applicants’ claims by this judgment.

(5)    Whether, having regard to the first judgment, and to the orders to be made by this judgment, the primary action should be permitted to stand as a class action on behalf of the Group Members: see the first judgment at [1] to [7], and if so how it should now further proceed.

(6)    As to costs.

4    I shall address those matters in that sequence.

The Recurring Payments Representation

5    The applicants seek orders:

(1)    declaring that PPQ, in delivering the 2004 Disclosure Document to Pampered Paws which failed to disclose that it would be necessary for Pampered Paws to sign and agree to the Global Supply Agreement, and thereby to accept from time to time Allocated Stock and to pay for it, engaged in conduct which was misleading or deceptive in contravention of s 52 of the TPA;

(2)    declaring that Global, PP Franchising, PP Holdings, PP and Mr Diamond aided and abetted that contravention; and

(3)    awarding damages pursuant to s 82 of the TPA in favour of Pampered Paws (the amount claimed is not quantified in the proposed orders).

6    The respondents oppose the grant of any declaratory relief, and say no loss and damage has been established in any event, in part because no reliance on the contravening conduct has been made out and so it did not cause any loss or damage.

7    It is clear that a person who has suffered loss or damage as a result of a contravention of s 52 of the TPA may recover that loss or damage from the contravenor and those who were accessories to its contravention. As the respondents point out in their submissions, the factual questions required to be addressed are therefore whether Pampered Paws suffered loss and damage “by” the contravention which has been found, and if so the amount of that loss and damage.

8    The applicants seek a finding that, but for the Recurring Payments Representation, Pampered Paws would not have entered into the Franchise Agreement with PPQ or the further range of agreements referred to in the first judgment. I found in the first judgment that the applicants would have entered into a Pets Paradise franchise with the agreements required by the respondents: see at [177], [184], [249] and [257]. In particular, at [184] I found that the failure of the Disclosure Document to expose the need to sign the Global Supply Agreement, the Franchise Agreement Guarantee and the Global Supply Agreement Guarantee did not cause any loss to any of the applicants. The obligation to pay Global for Allocated Stock arose under clause 4 of the Global Supply Agreement, which was in fact signed on or about 6 February 2006 during the training program. Until that point, as I found, PPQ would not have granted the franchise to Pampered Paws. The misleading conduct arose because, until the training program, the Global Supply Agreement – which was routinely circulated to prospective franchisees with the suite of documents – probably accidentally was not sent with the letter of 7 October 2005. What was the consequence of that misleading conduct? Was it a cause of Pampered Paws entering into the Franchise Agreement, or any of the associated documents?

9    I have carefully considered the extensive evidence references to which the applicants have drawn my attention in their further written and oral submissions. That evidence does not cause me to conclude that Pampered Paws, or Ms Donnelly or Ms Campbell, would have acted any differently by reason of the Recurring Payments Representation having been misleading in the manner found. For reasons which are apparent from the first judgment, and confirmed by my review of the evidence to which I have been referred, I find that Pampered Paws would have entered into the Pets Paradise franchise and the associated documents in any event. If Ms Campbell were prepared to sign the Global Supply Agreement Guarantee and its charge and the Franchise Agreement Guarantee and its charge in the circumstances she did, I do not accept that she would have taken such umbrage about the Global Supply Agreement and the obligation it imposed on Pampered Paws to take Allocated Stock from time to time at any time so as to alter in any way the fact that Pampered Paws took on the franchise. Nor would Ms Donnelly have acted any differently had she been aware of that between about 22 September 2005 and 15 November 2005 when she signed the Franchise Agreement and other documents including the Global Supply Agreement Guarantee, and was aware that a Global Supply Agreement was required, or even if in her case too the Recurring Payments Representation was not exposed as misleading because it did not indicate fully what was required until later during the training period. She accepted those obligations at a time when she could have avoided entering into the Franchise Agreement because without her (and Ms Campbell as the other director) accepting them, PPQ would not have entered into the Franchise Agreement. I find that despite the Recurrent Payments Representation, Pampered Paws would have entered into the Franchise Agreement and it and Ms Donnelly and Ms Campbell would have signed all the associated documents in any event. I have also considered whether, putting aside the entry into the Franchise Agreement itself, any of the applicants in any other way acted to their detriment by reason of the Recurring Payments Representation. I am unable to find that they did so in any way. I have considered the various steps taken between 22 September 2005 and early March 2006 when the Pampered Paws business started operating. I do not think that any of those steps would not have been taken if the Global Supply Agreement terms, in particular that relating to the Allocated Stock obligation, had been disclosed earlier than it was during the training period. Nor am I persuaded that any of the applicants would have acted in any way differently during Pampered Paws’ conduct of its business by reason of the Recurring Payments Representation having been made and not having been corrected until during the training period.

10    In reaching those conclusions, it is not necessary to refer separately to each piece of evidence to which the applicants drew my attention. It is clear that the Recurring Payments Representation was intended to have been made, and relied upon; that was the purpose of the Disclosure Document received by Pampered Paws on 26 September 2005. It is clear, as clause 6A of the FCC says, that the disclosure processes and obligations are intended to give a prospective franchisee the capacity to make a reasonably informed decision about whether and how to proceed to enter into a franchise agreement.

11    In many cases, as the applicants’ counsel urged, the Court will readily infer reliance upon a misleading representation in a document such as the Disclosure Document. There are reasons why, as I have sought to explain, in this matter that inference is not so readily drawn. The misleading character of the representation was exposed before Pampered Paws and PPQ had committed to a franchise agreement, although they were well down the path of doing so by the training period. When the correct position was exposed, Pampered Paws nevertheless proceeded to sign the Global Supply Agreement and then Ms Campbell in particular agreed to it doing so and to her providing the Global Agreement Guarantee and the charge over her assets to support it.

12    Whilst I accept generally the evidence, in particular that of Ms Campbell – because that was the evidence mainly referred to in the submissions – that she was comforted by the terms of the Disclosure Document and understood it as “setting out what the business did and did not do”, I do not accept it unequivocally. There are a few passages in her affidavits which suggest that, had she known of the obligation to accept and pay for Allocated Stock from Global, she would not have proceeded to the training period at all and would not have taken certain steps (set out in paras 55.2 to 55.5 and 56.1 to 56.2 of the SFASOC) which she took. I do not accept that, taking the Recurring Payments Representation alone – as that is the only pleaded misrepresentation that was established – Ms Campbell would have acted differently in the lead-up to the training period in any way. It is, as the applicants through their counsel submitted, relatively easy to say that each of the representations in the Disclosure Document led the applicants forward over the period between September 2005 and March 2006. However, it is necessary to focus on the particular misrepresentation which has been established. I have the advantage of knowing how Ms Donnelly and Ms Campbell reacted when the misrepresentation was exposed. I have the benefit of seeing them give evidence, and seeing how they responded to a range of issues which they had to address. They have explained the process by which they reached the training period, including their plans for the proposed business of Pampered Paws and the extent to which they took independent advice, and how they expected to be able to deal with PPQ and Global. In particular, I have the benefit of seeing how Ms Campbell reacted when she was confronted with the need to sign the charges to support the Franchise Agreement Guarantee and the Global Supply Agreement Guarantee.

13    In summary, to address the proposition in the applicants’ written submissions, I do not accept on the whole of the evidence that the Recurring Payment Representation contributed to the decision by Pampered Paws (through Ms Donnelly and Ms Campbell) to purchase the Pets Paradise franchise, and I do not accept that during the period to the time when the misrepresentation was corrected any of the steps taken by any of the respondents towards the franchise agreement would not have been taken or would have been taken in a different way if that misleading misrepresentation had not been made.

14    It follows, in my view, that the conduct constituting misrepresentation by the Recurring Payments Representation up to about 7 February 2006 has not caused any of Pampered Paws, Ms Donnelly or Ms Campbell any loss or damage. So that it is clear, in addressing the issue, I have applied the test for causation discussed in March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 and I & L Securities Pty Ltd v HWT Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, especially per Gaudron, Gummow and Hayne JJ at [55]-[57], as recently considered by Stone J in De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) (2011) 84 ACSR 527, and by Besanko J in Rafferty v Time 2000 West Pty Ltd (No 4) [2010] FCA 725. It is not a finding of an intervening act breaking the chain of causation, but a finding on the whole of the evidence that there was no reliance on the misrepresentation and that, by the contravening conduct, none of the applicants suffered loss and damage.

15    In view of the findings I have made, it is not necessary to address the respondents’ contention that, even if the contravening conduct caused any loss or damage to any of the respondents, it was overtaken by their failure to take reasonable care in operating the Pampered Paws business.

16    It will be necessary, to some extent, to consider how the Pampered Paws business was run to address certain of the other issues below. In relation to the Recurring Payments Representation, the applicants did not seek to make out any particular loss after the Pampered Paws business commenced operating and until 30 June 2008 (a date specified by the applicants, presumably because the way the Pampered Paws business was operated after that date was not affected in any event by the obligation to take any Allocated Stock). I record my view that there is no evidence from which I could find that the Recurring Payments Representation, or more accurately the fact that it was misleading, caused any such loss in any event as its effect was spent before the Franchise Agreement actually became effective and its taking effect was within the control of Pampered Paws because it could have refused to sign the Global Supply Agreement in February 2006.

17    I have in the first judgment made the finding of a contravention of s 52 of the TPA by the Recurring Payments Representation. Although the significance of contravention of provisions such as s 52 of the TPA should not be understated (see eg per Gummow J in Marks v GIO Australian Holdings Ltd (1998) 158 ALR 333 at 359, in this matter I do not consider it appropriate to make a formal declaratory order about the contravention by the Recurring Payments Representation.

18    It is also correct, as the applicants contended, that generally speaking there are five accepted circumstances in which, despite a contravention of s 52 or of a related provision of the TPA, no declaratory order is made: see Cruse v Multiplex Ltd [2008] FCAFC 179, and that the present circumstances do not fall within any of those categories.

19    However, beyond those categories, it must be accepted that the making of a declaratory order is discretionary: Ainsworth v Criminal Justice Commission (1992) 106 ALR 11 at 28. The reasons I do not make a declaratory order are threefold. First, because (as I have found) the contravention occurred probably through the accidental omission to include the Global Supply Agreement in the documents sent with the letter of 7 October 2005, and that error was corrected by the requirement prior to PPQ entering into the Franchise Agreement that the Global Supply Agreement be signed and by the explanation of the requirement to take and pay for Allocated Stock during the training period and before the Franchise Agreement gave rise to legal obligations, and at a time when Pampered Paws and its directors could have refused to sign the Global Supply Agreement and some other significant documents. Secondly, because I have found that the contravening conduct did not cause the applicants any loss. And thirdly, and more importantly, because there is a risk that any declaratory order might be seen as one of more general application to the Group Members. This claim is one which is brought under Part IVA of the FCA Act, and it is important to ensure that no declaratory order of the Court might be seen as of significance to the Group Members. The term of the declaratory orders sought by the applicants (in para 6.1 of their Supplementary Trial Submissions) would not make it clear that the findings underlying the proposed declaratory orders would not avail any of the other Group Members.

Exclusive Dealing Claim

20    The primary judgment at [218]-[250] records my reasons and conclusions for finding this claim has been made out, namely that between March 2006 (when Pampered Paws commenced operating) and 31 December 2006 PPQ offered to supply, and supplied, the goods and services constituted by the franchise to Pampered Paws:

(a)    on the condition that Pampered Paws would acquire stock from Global, and

(b)    on the condition that Pampered Paws would acquire the IT Visions System from IT Visions.

21    The primary question is what loss Pampered Paws suffered by the contravention of s 47(1) of the TPA. Of course, it is not necessary for the contravention to be the sole, or the material or main, cause of that loss.

22    Pampered Paws has specified its loss as comprising:

(i)    damaged stock of $20,210;

(ii)    undelivered stock of $9,184;

(iii)    Allocated Stock of $15,105; and

(iv)    freight of $17,460.

23    The respondents dispute that any such loss was suffered by the contravention.

24    I have found that it was the requirement of PPQ that Pampered Paws should sign the Global Supply Agreement before it granted the franchise: primary judgment at [162], as it did on about 6 February 2006, and consequently Pampered Paws to a substantial but not exclusive degree acquired its stock from Global: at [238]. On the other hand, both Ms Donnelly and Ms Campbell contemplated that Pampered Paws would acquire stock from Global as the supplier for PPQ of the “Pets Paradise” products. That was part of the benefit of the franchise: to trade under a recognised and respected name, with quality products and products acquired with the superior buying power of Global: see at [239] and [242].

25    In those circumstances, I do not accept the simple proposition of the applicants that whatever stock they got from Global which was defective or was not properly delivered, or the costs of the transportation of such stock, is routinely recoverable under s 82 of the TPA. The position is more complicated. Firstly, as I have found in relation to the Recurring Payments Representation, Pampered Paws would have entered into the Global Agreement in any event. That is so, whether or not there was an element of compulsion in it doing so. Pampered Paws intended to acquire stock from Global, and it intended to do so and did so irrespective of the element of compulsion imposed by PPQ. I reject Pampered Paws’ proposition that, but for the contravention of s 47(1), it would not have signed the Franchise Agreement and the related documents and it would not have undertaken a Pets Paradise franchise.

26    The question in those circumstances is whether Pampered Paws acquired any stock from Global or in some other way Pampered Paws acted so as to suffer a detriment which, but for the contravening conduct, on the balance of probabilities would not have occurred. That is really a paraphrase of the question, or the starting point for the question, whether Pampered Paws suffered loss by the contravention.

27    I will deal with the individual claims of loss set out above.

28    I am unable to be satisfied that the claims for damaged stock are a consequence of, that is are a loss suffered by, the contravention of s 47(1). That is so whether there was damaged stock to the extent claimed by the applicants, or to a lesser degree, and whether any damage was caused in transit or before despatch by Global. It would, in my view, be necessary first to identify the particular stock (or the general extent of stock) acquired by reason of the exclusive dealing, and then to identify the extent to which that stock was damaged. I am unable to do that on the evidence. Even then, it is not clear that the mere fact that any such stock was damaged, either at despatch or in transit, may mean that the loss resulting from the damage was “by” the contravention, although I do not need to decide that issue; it is clearly arguable to the contrary.

29    In any event, I am unable to be satisfied that, in respect of the asserted damaged stock, Pampered Paws suffered any particular quantifiable loss. That is partly because, on the evidence, Pampered Paws through Ms Donnelly and Ms Campbell were quite reactive to the delivery of stock they thought was damaged, by reducing payments otherwise due on invoices. Also, it is not shown whether the damaged stock was sold and if so at what price. In some instances there is evidence that credit was given for reported damaged stock. I also do not accept the claim that the first stock order, made during the training period, was a consequence of any contravention of s 47(1); it was always the expectation that Pampered Paws would acquire a significant part of its opening stock from “Pets Paradise” – relevantly, Global – and it is not possible to find that any part of the opening stock was acquired by reason of the contravention of s 47(1) of the TPA.

30    I am also unable to be satisfied that the claimed loss of $9184 (as explained in the report of Mr Benjamin) for undelivered stock was caused by the contravention of s 47(1). The evidence does not show that, but for the compulsion to acquire stock from Global up to 31 December 2006, stock which otherwise has been supplied and delivered by Global to Pampered Paws was not delivered. It is not necessary to address the respondents’ contentions that, in any event, if there were any short delivery, it is not shown either that loss to the amount claimed is made out in respect of the period to 31 December 2006 or at all, having regard to Pampered Paws contractual rights against Global and including the credits on invoices it claimed and was allowed.

31    The claim based on the supply of Allocated Stock is more complex. Whilst I have not accepted the claim that, but for the contravention of s 47(1), Pampered Paws would not have signed the Global Supply Agreement and would not have accepted the Pets Paradise franchise, at least during the period to 31 December 2006 Pampered Paws was issued with Allocated Stock (in the light of my finding above, not including the initial stock) which it may not otherwise have acquired from Global.

32    The difficulty is to quantify any resulting loss. From fairly early after it commenced operating, Pampered Paws used suppliers other than Global, and increasingly so. As I have also found, because of that, the fact that Pampered Paws acquired stock from Global (other than Allocated Stock) during that period does not establish to my satisfaction that it thereby suffered any loss. Even in the case of the Allocated Stock supplied during that period, its loss is not the cost of that stock but the net loss resulting from having that stock imposed on it. I also reject the claim that the transport cost of that stock should be included as a loss of itself, because I do not accept the evidence that all non-Global stock was routinely provided free of freight or that in any event the cost of Global stock plus freight is shown to have been higher than comparable non-Global stock, or that, when sold, it produced a loss to Pampered Paws.

33    The spreadsheets supported by Ms Campbell’s evidence show that the Allocated Stock supplied was $16,613, adjusted by Mr Benjamin to $15,105. I accept that the exercise of preparing that spreadsheet by Ms Campbell was done conscientiously from the business records of Pampered Paws, and that its records routinely recorded “Allocated Stock”. Consequently, I use the figure of $15,105 as a starting point. I am also prepared to accept that, as the Allocated Stock was not sought by Pampered Paws, it may not have disposed of all of it or may not have done so profitably. There is no evidence to precisely quantify that loss. It is not possible, on the evidence, to ascertain whether that stock was sold by Pampered Paws and if so whether it was sold at a profit or a loss. The evidence of Mr McDonald suggested that that stock was sold for a gross profit (representing about a 50% mark-up on cost to Pampered Paws), but he made some assumptions in reaching that view. They were that all the Allocated Stock in issue was suitable for sale, and was sold. There is also some uncertainty about the way the Allocated Stock (and stock generally) was recorded by Pampered Paws because the Sales by Location Report on which his analysis was based relied upon the use of Global product codes when it is not clear that that Report correctly and consistently used such codes.

34    The applicants in their reponse submission say that, because the respondents have asserted the gross profit on sale of Allocated Stock, they have the onus of proving it. In circumstances where I have concluded that Pampered Paws entered into the franchise knowing of the obligation to accept Allocated Stock, in my view the applicants have the onus of proving their loss suffered by the contravention. Their evidence goes only part way to showing the real picture, and only at a general level, for the reasons given. Mr McDonald’s evidence, with the flaws he acknowledged, then must be put into the material to be considered.

35    The end result of my consideration of all the evidence is that I am not satisfied that Pampered Paws, by having to take the Allocated Stock, suffered any loss. The evidence is too non-specific to do so. That is no criticism of the parties, but reflects that the picture to be established is a very complicated one.

36    The claim based on the supply of Approved Stock, in my view, is not made out. That is firstly because I am not persuaded that it is appropriate to assert, as the applicants have done, that the difference between what Global charged for the supply of its products including “Pets Paradise” products and what might have been charged for similar products if Pampered Paws had not taken on the Pets Paradise franchise is an appropriate measure of damages. The Approved Stock was not acquired by reason of the contravention of s 47(1), but because Pampered Paws (and PPQ) agreed ultimately to that franchise only in February 2006 when the final documentation was signed. Consequently, Pampered Paws chose to acquire that stock.

37    In addition, having had the benefit of hearing all the evidence, I am not persuaded that the comparisons made in the relevant Schedule prepared by Ms Campbell are reliable. That is not to cast any doubt on her honesty. It is that, in the light of all the evidence including her cross-examination and Mr Diamond’s evidence, I am not satisfied about the fact of the comparisons being sufficiently reliable. I made a general finding about that in the first judgment at [194], [198]. I do not think it would be useful to go into extensive detail to expand upon that dissatisfaction. As the respondents also pointed out in their supplementary written submissions, there is a column in the spreadsheets which indicates that Global products are in some significant instances cheaper than those capable of being provided by alternative suppliers, even if the stock in question was comparable.

38    Finally, I am in any event unable to take the step of finding that there was any loss to Pampered Paws when selling prices and sales are taken into account. That has not been addressed in any persuasive way. But it would be wrong to assume that, in terms of selling prices, “Pets Paradise” products – even if in fact equivalent to a generic product or the product of another known supplier – would sell in all respects at the same price as the equivalent non “Pets Paradise” products.

39    I have rejected above the claim based upon transport costs. I should add, having regard to my findings, that the evidence did not isolate the transport costs for Allocated Stock.

40    I have found this contravention made out, but no loss suffered by Pampered Paws has been proved. Nonetheless, I consider that it is appropriate to grant the declaratory relief sought. In this instance, there may be some utility in doing so as the conduct engaged in may have relevance to the Group Members. However, in their respective cases, the above reasons demonstrate the difficulty of establishing that they may have suffered loss by the contravention, so that they may be entitled to damages. I note again that, from 1 January 2007, the contravening conduct no longer took place, as s 47(1) was amended from that date.

41    I accordingly will declare that PPQ, in offering to supply services to Pampered Paws, being the right to operate a Pets Paradise franchise on the condition that Pampered Paws accept from time to time Allocated Stock from Global and to pay Global for such stock, up to 31 December 2006, engaged in the conduct of exclusive dealing contrary to s 47(1) of the TPA.

42    In the first judgment, I noted at [225] that the alleged contravention of s 47(1) included the allegation that PPQ supplied or offered to supply the PPQ franchise to Pampered Paws on the condition that Pampered Paws would acquire the IT Visions System from IT Visions. Then at [241]-[244] I found that contravention was made out.

43    The applicants proposed final declaratory orders and sought damages in respect of that contravention. In their Supplementary Trial Submissions under the heading “Exclusive Dealing”, there are no submissions addressing that contravention. Nor is there any submission about it in that section of the Supplementary Trial Submissions headed “Loss and Damage: First Applicant’s Damages for ‘exclusive dealing’”. Nor was it addressed in the written submissions in response, or other than in passing during the closing oral submissions on loss, damage and other orders. It is not surprising that the respondents’ submissions touch only on the claimed declaratory relief to point out that it would be of little utility to the Group Members because of the need to address their individual circumstances.

44    In the primary judgment, I concluded at [100] that the IT Visions System Representation was not misleading or deceptive. If a Pets Paradise franchise acquired stock mainly from Global, and when non-Global stock was acquired, obtained a product code for it, there is on the evidence at present no reason to think that the need to use the IT Visions System would have caused any difficulty to a franchisee.

45    For those two reasons, I do not see any utility in relation to Group Members in making the declaratory order sought by the applicant in relation to that aspect.

46    In view of the matters discussed in the primary reasons at [101] and [245], it is my view the evidence does not establish that Pampered Paws suffered loss by the contravention of s 47(1) in this respect. The absence of submissions on its behalf probably reflects that conclusion, although I do not reach that conclusion simply in the absence of detailed submissions. In that circumstance, and because a declaratory order would not be of any real utility to Group Members, I also decline to make the declaratory order sought in relation to that aspect of the contravention of s 47(1) of the TPA.

Franchising Code of Conduct

47    In the primary judgment, I found at [253]-[254] that PPQ had contravened the FCC in five respects. For the reasons given below, I accept that the finding at [254] in respect of the Director’s Security Non-Disclosure is not correct. Apart from that, PPQ and possibly other respondents in four respects contravened s 51AB of the TPA because of the breaches of the FCC.

48    The applicants seek extensive declaratory relief, and damages as a consequence.

49    For reasons which are already apparent, I do not accept that, but for those contraventions – taken individually, or collectively, or collectively with the other contraventions of the TPA which I found to have been established – Pampered Paws would not have acquired the Pets Paradise franchise. I will not repeat those reasons. The applicants in their written submissions did not put forward a case that, in some other more limited respect, this contravening conduct caused them or any of them particular damage. I do not accept, therefore, that Pampered Paws suffered loss and damage by those contraventions of the FCC, and so of s 51AB of the TPA.

50    In those circumstances, I also decline to make any declaratory orders concerning these contraventions. To do so would serve little purpose, as the contraventions occurred in circumstances which distinguish the position of Pampered Paws from that of other Group Members. In short, my reasons for declining such relief are the same as those applying in respect of the contravention of s 52 of the TPA which was made out.

51    I also decline to make orders declaring the Franchise Agreement, the Franchise Agreement Guarantee and the Global Supply Agreement void. The power to do so clearly exists, even in the absence of loss or damage: Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608, but the discretion available under s 87 of the TPA is usually guided by equitable principles: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 at 102.

52    The present circumstances do not warrant the making of any such orders. It is enough to refer to my findings of the circumstances in which the contraventions of the FCC and so of s 51AB occurred. They are relevantly the same as those in which the contraventions of ss 52 and 47(1) occurred. They do not involve conduct of the respondents or any one of them which was fraudulent or deliberately wrongful: see the primary judgment at [165], and ultimately they were righted by the events which took place during the training period (except for the ongoing compulsion to take Allocated Stock).

53    To avoid any suggestion of oversight, I note that the conclusion applies whether the claim to have those agreements avoided ab initio is made in respect of the contraventions of s 52 or s 47(1) as well as of s 51AB of the TPA. It is simply convenient to deal with that issue at this point in these reasons.

54    In relation to the finding in the primary judgment at [256] regarding the Directors Security Non-disclosure, I accept that the Disclosure Document did disclose the requirement for the directors of Pampered Paws to provide the Franchise Agreement Guarantee (as distinct from the Franchise Agreement Guarantee charge – which was only apparent from the Franchise Agreement Guarantee itself). Consequently, to that extent, I record that the primary judgment should be recorded as incorrect. The breach of the FCC by the Directors Security Non-disclosure finding should not have been made. This correction makes no difference to these reasons otherwise addressing the applicants’ claims for relief generally.

Unpaid Wages Claim

55    The primary judgment at [264]-[267] provides the foundation for now assessing the claims of Ms Donnelly and Ms Campbell under this heading.

56    I have considered their supplementary submission, and the material to which they referred. Much of that material is material to which I was referred, and took into account, when considering the primary judgment.

57    Where a person, in reliance on a misrepresentation which induces an entity with which that person is associated to purchase a business and that person was anticipated to work and does work in that business and the business is loss-making so the person works without reward, that person may pursue a claim for damages by way of unpaid wages: All Fasteners (WA) v Caple [2007] FCA 1252. But, in this matter, the premise has not been established. I have not accepted that Pampered Paws acquired the Pets Paradise franchise by any contravention of the TPA. The contrary is the case: I have found that, despite those contraventions which I have found to have been established, it would have and did enter into the Pets Paradise franchise in any event.

58    Consequently, although it is clear that Ms Connelly and later Ms Campbell worked long hours with little financial reward in the Pampered Paws business, and that they did so to try and preserve the Pampered Paws business when it was not operating in as financially a successful way as they had hoped and anticipated, I do not accept that their acting in that way was caused or contributed to by conduct of any of the respondents which contravened the TPA.

59    This claim therefore is not made out.

Accessorial Liability

60    As I have indicated above, I propose to make a declaratory order against PPQ in respect of the contravention of s 47(1) of the TPA.

61    Clearly Global was, in the sense prescribed by s 75B, an accessory to that contravention. It was the beneficiary of the contravening conduct as well as the relevant contracting party. So too, was Mr Diamond who was the driver behind the Pampered Paws franchising system.

62    The applicants also seek orders against PP Franchising, PP and PR Holdings. The evidence to which my attention was drawn in relation to the relevant contravention largely focused on the role of Global and of Mr Diamond. I do not consider that, on the evidence, any of those other three respondents are accessorily liable for the particular contravention in respect of which I propose to grant declaratory relief against PPQ. It is not shown that any of them acted in a way which directly implicated them in the contravention. The fact that Mr Diamond is the driving force behind the Pets Paradise group, including those entities, is not of itself sufficient. He did not cause them to act in any particular way so as to be concerned in the contravention.

63    I accordingly will make a declaration that Global and Mr Diamond counselled and procured, and were directly knowingly concerned in the contravention of s 47(1) of the TPA by PPQ by its conduct referred to above.

The Group Proceeding

64    In view of the findings in the primary judgment, and this judgment and the orders to be made, I accept the submission of the respondents that it is no longer of sufficient benefit to the other Group Members to continue this proceeding as a group or class action under s 33C of the FCA Act.

65    I have made only one primary declaratory order in respect of the contravention of s 47(1) of the TPA, relating to the requirement to acquire Allocated Stock from Global. Section 47 was amended, effective from 1 January 2007 so that, thereafter, the tying of Global products to a Pets Paradise franchise no longer became unlawful. The precise dealings with any particular Pets Paradise franchisee would have to be addressed in any event, as it is not clear that prior to that date all prospective franchisees received precisely the same letter as Pampered Paws, and in addition it is a matter of particular detail about the impact of the obligation to take Allocated Stock from Global upon a particular franchisee.

66    The need to focus on the individual circumstances of each individual franchisee is equally apparent if the relevant contravening conduct is the taking of the ITV system. As is apparent from my consideration of that aspect in relation to Pampered Paws, the evidence does not make out that the ITV system was not generally speaking a good one for use in Pets Paradise stores. Its problem for Pampered Paws arose because it departed so substantially from the model, without then ensuring its stock acquired from other sources was given a product coding for the system. How that obligation affected any other franchisee detrimentally, if it did, is obviously a matter for detailed individual inquiry.

67    I propose to order, therefore, that this proceeding no longer continue as a class action, but I will stand over the proceeding for a period of three months to enable any Group Member to apply to be joined as an applicant to the proceeding. Any such application should be supported with the proposed statement of claim of that group member. I will direct, therefore, that any Group Member may apply by motion, to be filed (and served on such of the respondents as that proposed applicant intends) by 1 July 2013 and returnable at 9:15 am on 11 July 2013 to be joined in the proceeding as an individual applicant. If no such application is made by the stipulated date, the proceeding will simply be dismissed by virtue of the orders to be made.

68    Of course, it remains an option for any Group Member to bring separate proceedings in this Court or in another appropriate Court, although there may be time limitation matters which would also then need to be considered.

The Cross-Vested Proceeding

69    In the light of my conclusion that the Franchise Agreement is not to be declared void ab initio, the applicants in their Supplementary Trial Submissions in Response and Submissions on Relief Sought and the Victorian Proceedings contend that there are nevertheless unresolved defences to the Victorian Proceeding.

70    They are identified as:

(1)    that in relation to Ms Campbell, the Franchise Agreement Guarantee is unenforceable because any consideration she gave was past consideration, based upon the Franchise Agreement having been signed on 15 November 2005 and Ms Campbell having been requested to sign the Franchise Agreement, and signing it, only on 6 February 2006; and

(2)    that the Court, in respect of the successful claims of the applicants, could exercise power under s 87 of the TPA to prevent recovery of monies claimed in the Victorian Proceeding.

71    On the material, as I consider the Franchise Agreement Guarantee is enforceable, I do not see that the applicants have any basis for resisting the claims made in the Victorian Proceeding. They are:

(a)    the service fee payable under cl 5.3 of the Franchise Agreement and cl 1 and Sch 7 of the Franchise Agreement;

(b)    the advertising contribution payable under cl 5.4 of the Franchise Agreement, again as further explained by cl 1 and Sch 7 of the Franchise Agreement; and

(c)    costs payable under cl 5.7(d) of the Franchise Agreement.

72    The respondents say, and it is not controverted by the applicants, that they should be given an opportunity to update and formally prove those claims. I will accommodate that request.

73    The effect of my findings is that Ms Campbell did give consideration for signing the documents she signed on 6 February 2006. That is because her preparedness to sign them was a requirement of PPQ before it would formally sign the Franchise Agreement, and on the other side it is also the case that Pampered Paws would not have been committed to the franchise unless she signed them. At present, having regard to my findings and conclusions, I see no basis for any order under s 87 of the TPA which would deprive PPQ of its entitlements under the Franchise Agreement and its supported guarantee. The reasons for that are clear enough.

74    Accordingly, I will adjourn the Cross-Vested Proceedings for further directions to the same date as the date that the principal claim by the applicants is next to come on for directions, but with liberty to any party to apply to bring it on for further directions at an earlier time. The parties may well be able to agree upon proposed orders to lead to its final disposition.

Orders

75    The effect of the above is that I propose to make the following orders:

To declare that:

1.    PPQ, in offering to supply services to Pampered Paws, being the right to operate a Pets Paradise franchise on condition that it accept from time to time Allocated Stock from Global and do pay Global for such stock, up to 30 December 1996, engaged in the conduct of exclusive dealing contrary to s 47(1) of the Trade Practices Act 1974 (Cth) as then in force (now in an amended form s 47(1) of the Competition and Consumer Act 2010 (Cth)).

2.    Global and Mr Diamond counselled and procured and were directly knowingly concerned in the said contravention.

To order that:

3.    Subject to Orders 4 to 10 hereof, the claims of the applicants otherwise be dismissed.

4.    Subject to Order 5 hereof, the proceeding no longer continue as a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth).

5.    Notwithstanding Order 4 hereof, any person or entity previously falling within the description of a Group Member, namely a present and former Pets Paradise franchisee from one or other of PPQ, PPSA or PPNSW, may by notice of motion issued no later than 1 July 2013 and duly served on the respondents apply to be an individual applicant in this proceeding, accompanied by the proposed statement of claim of that person or entity, such notice of motion to be returnable before the Court at 9:15 am on 11 July 2013.

6.    The application in the cross-vested action constituting the cross-claim of the first respondent be stood over for further directions at 9:15 am on 11 July 2013.

7.    The respondents file and serve the terms of their proposed order for costs, and their submissions in support of that order, by 3 May 2013.

8.    The applicants file and serve the terms of their proposed order for costs, and their submissions in support of that order and in response to the respondents’ submissions by 14 June 2013.

9.    The respondents file and serve any submissions strictly in reply to the applicants’ submissions by 28 June 2013.

10.    There be liberty to any party to apply to vary Orders 5 to 9 hereof on reasonable notice.

76    To avoid any misunderstanding, although Orders 4 and 5 leave the principal proceeding alive for the Group Members to consider their individual positions, Orders 1-3 are now final orders disposing of the applicants’ individual claims in that proceeding.

77    As the question of costs was also deferred, I have provided in the orders a timetable for the exchange of written submissions on costs. I will give a decision on costs after considering the written submissions.

Associate:

Dated:    19 March 2013