FEDERAL COURT OF AUSTRALIA

Cash Bazaar Pty Ltd v RAA Consults Pty Ltd (No 2) [2020] FCA 636

ORDERS

THE COURT ORDERS THAT:

1.    The proceeding be dismissed as against the first, second, third, fourth, seventh and eighth respondents.

2.    The applicants pay the seventh and eighth respondents’ costs of this proceeding.

3.    There be leave for the parties to file within 21 days hereof submissions addressing whether the interlocutory judgment entered against the sixth respondent on 19 March 2019 should be set aside given the reasons of this judgment.

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

TABLE OF CONTENTS

REASONS FOR JUDGMENT

STEWARD J.:

1    In early 2016, the second applicant (“Mr. Patel”), and his company, the first applicant (“Cash Bazaar”), became involved in certain franchise arrangements with the first and second respondents (two companies called in this judgment “Express Australia” and “Express Victoria” respectively). In simple terms, Mr. Patel and Cash Bazaar contend that in exchange for the payment by them of two sums ($372,000 and $300,000) these arrangements obliged Express Australia and Express Victoria to pay to them certain guaranteed payments for a period of years. Some of those amounts were paid. But in 2017 the payments stopped. Mr. Patel and Cash Bazaar contend that they have consequently suffered losses. They sought damages for breach of contract, and for misleading or deceptive conduct. In that respect, they have also sued the following former officers and employees of Express Australia and Express Victoria:

(a)    Mr. Reece Arcon (“Mr. Arcon”) who was a director of Express Australia and Express Victoria. He is the third named respondent. At the time of the trial, Mr. Arcon told the Court that he remained a bankrupt (this was not disputed);

(b)    Mr. Rhys Scutts in his capacity as executor of the deceased estate of Mr. Peter Scutts (“the Estate”). Mr. Peter Scutts (“Scutts Senior”) was a director of Express Australia. He passed away following the commencement of this proceeding. The Court was told that the Estate is insolvent (this was not disputed). The executor is the fourth respondent;

(c)    Mr. Rod Wakefield (“Mr. Wakefield”) who was an officer of Express Australia. He was originally named as the fifth respondent but proceedings against him ceased upon a settlement being reached between him and the applicants. He was not called by any party to give evidence;

(d)    Mr. Lloyd Roberts (“Mr. Roberts”) who was an officer of Express Australia. He is the sixth named respondent. On 19 March 2019, default judgment was entered against him with damages to be assessed: Cash Bazaar Pty Ltd v. RAA Consults Pty Ltd [2019] FCA 450. He did not appear at the trial and was not called by any party to give evidence;

(e)    Ms. Jai Mansfield (“Ms. Mansfield”) who was an employee of Express Australia. She is the seventh named respondent; and

(f)    Mr. Ross Scutts (“Scutts Junior”) who was a contractor of Express Australia. He described his role as that of a sales person with the title of “Franchise Development Manager”. He is the son of Scutts Senior and is the eighth named respondent.

2    At trial:

(a)    Mr. Patel and Cash Bazaar were represented by Ms. Sparke, Q.C.;

(b)    the Court was told that Express Australia was insolvent and in liquidation and that Express Victoria had earlier been deregistered. Express Australia was unrepresented. Save that Ms. Sparke, Q.C. wished to press for the making of declarations that these companies had engaged in misleading or deceptive conduct, the applicants did not press their claims in contract against these companies (the claims had no utility) and agreed that the proceeding against Express Australia should otherwise be dismissed without adjudication on the merits. I note, however, that no application for leave to proceed against Express Australia pursuant to the Corporations Act 2001 (Cth.) was ever made by the applicants;

(c)    Mr. Arcon represented himself;

(d)    the Estate was unrepresented; and

(e)    Ms. Mansfield and Scutts Junior were represented by Mr. Callanan of Counsel.

3    In substance, the contest before me was whether Mr. Arcon, Ms. Mansfield and Scutts Junior had engaged in misleading or deceptive conduct, both as principals and as individuals knowingly concerned in the alleged misleading or deceptive conduct of Express Australia and Express Victoria, in contravention of s. 18 of the Australian Consumer Law (“A.C.L.”) as set out in Sch. 2 to the Competition and Consumer Act 2010 (Cth.). That contest turned upon the content of certain alleged representations made by these individuals, and a number of other officers of Express Australia. The alleged representations were, save in two cases, said to have taken place in meetings and telephone conversations with Mr. Patel (the sole director and sole shareholder of Cash Bazaar). Significantly, the applicants contend that the alleged representations were with respect to future matters within the meaning of s. 4 of the A.C.L., and the respondents did not have reasonable grounds for making such representations. Each respondent denied that all of the alleged representations were ever made (although, some were admitted in whole or in part). In a trial which involved only some contemporaneous documentary evidence, much of the applicants’ case turned upon Mr. Patel’s recollection of events. He called no witnesses to corroborate his version of what had taken place. For the reasons which follow, I would dismiss the applicants’ case with costs.

APPLICABLE LEGISLATION

4    Section 18 of the A.C.L. provides:

Misleading or deceptive conduct

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

(2)    Nothing in Part 3-1 (which is about unfair practices) limits by implication subsection (1).

5    “Conduct” is relevantly defined in s. 2(2)(a) of the A.C.L. in these terms:

a reference to engaging in conduct is a reference to doing or refusing to do any act, including:

(i)    the making of, or the giving effect to a provision of, a contract or arrangement; or

(ii)    the arriving at, or the giving effect to a provision of, an understanding; or

(iii)    the requiring of the giving of, or the giving of, a covenant; ...

6    Section 4 of the A.C.L. is concerned with representations with respect to future matters. It provides:

Misleading representations with respect to future matters

(1)    If:

(a)    a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b)    the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of this Schedule, to be misleading.

(2)    For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:

(a)    a party to the proceeding; or

(b)    any other person;

the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.

(3)    To avoid doubt, subsection (2) does not:

(a)    have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or

(b)    have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.

(4)    Subsection (1) does not limit by implication the meaning of a reference in this Schedule to:

(a)    a misleading representation; or

(b)    a representation that is misleading in a material particular; or

(c)    conduct that is misleading or is likely or liable to mislead;

and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.

7    Section 236 of the A.C.L. provides:

Actions for damages

(1)    If:

(a)    a person (the claimant ) suffers loss or damage because of the conduct of another person; and

  (b)    the conduct contravened a provision of Chapter 2 or 3;

the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.

...

8    The term “involved” is defined by s. 2(1) of the A.C.L. as follows:

involved: a person is involved, in a contravention of a provision of this Schedule or in conduct that constitutes such a contravention, if the person:

   (a)    has aided, abetted, counselled or procured the contravention; or

(b)    has induced, whether by threats or promises or otherwise, the contravention; or

(c)    has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or

   (d)    has conspired with others to effect the contravention.

OVERVIEW OF THE APPLICANTS’ CASE

9    It is useful to commence with a description of the franchising system that lies at the heart of this case and a summary of the applicants’ essential claims against the respondents.

Express Australia’s business

10    Express Australia had been in the business of selling, directly and indirectly, franchises across Australia in the homes services industry. That industry included services such as property maintenance, dog washing, lawn mowing, home and office cleaning and removals and freight. A related company, called Express Business Group Pty Ltd (“Express Business”), had developed certain intellectual property including, it would seem, certain branding and get up, designed to facilitate the sale of home services by individual franchisees. That related company apparently held the exclusive rights to that intellectual property relevantly throughout Australia. In my view, the various rights were never adequately identified and their commercial value and utility (if any) remain unclear. In these reasons I will call this collection of intellectual property rights the “Express Intellectual Property”. It was not disputed that Express Business had granted a licence in some way to Express Australia to “use and sub-license and/or franchise” the Express Intellectual Property in Australia.

Tiers of franchise arrangements

11    For the purpose of selling franchises, a “tiered franchising system” was adopted. Rights to use the Express Intellectual Property were granted in a cascading fashion from the top tier to the lower tiers. Geographical boundaries and areas created by reference to population numbers played a significant role in the franchising system. In that respect, the territory of the Commonwealth of Australia was divided into areas within which a franchisee would have the exclusive right to use the Express Intellectual Property to sell one of the defined home services. Using a concept, said to have been derived from the United States of America, Express Australia granted the right to use its intellectual property rights to intermediate franchisors. These had exclusive rights to sell franchises within a larger defined area for a specified service. Such a franchisor was called a Regional Master Franchise (“RMF”) franchisor. It had the right to sell up to a specified number of franchises for a specific home service with the Express Intellectual Property within its territory and, together with Express Australia, to be paid franchise fees. The RMF franchisor did not itself carry on the specified service; this was the responsibility of the underlying franchisees.

12    Another type of franchise created by Express Australia covered the territory of each state for a particular home service. It was called a State Master Franchise (“SMF”) and it conferred on that franchisor the rights to apply the Express Intellectual Property for the specified service within a state. Whilst it was not entirely clear, it would appear that SMF agreements conferred on the SMF franchisor the ability to sell RMFs within a single state.

13    Yet another type of franchise was created as part of a restructure. It was called a Multi Master Franchise (“MMF”) and covered all services for the territory of an entire state. It conferred on that franchisor “the rights to all existing franchised and company run units” within a state. I infer that it conveyed an ability to sell SMFs in respect of identified home services. Relevantly, Express Victoria was the MMF franchisor for the state of Victoria.

14    By the creation of MMFs, SMFs, RMFs and individual franchises, the rights to the Express Intellectual Property for specific services were divided up into layers of decreasing size, with each intermediate franchisor (and Express Australia) taking its cut of the fees payable by the underlying primary franchisees who carried out the relevant home services.

15    An element of Express Australia’s business model was to offer to pay a prospective RMF franchisor a guaranteed stream of income for a defined period. The first year of payments would be funded from part of the purchase price payable by that RMF franchisor for the right to use the Express Intellectual Property for a specified home service in a given territory. The guaranteed income gave the prospective RMF franchisor some comfort that purchasing such rights would be commercially attractive. The RMF franchisor was otherwise exposed to the risk that it would be unable to sell franchises, or that the business of individual franchisees within the RMF territory would fail or be less successful than expected. In each case, the RMF franchisor would not be paid franchise fees or be paid fewer fees.

The agreements and alleged representations

16    The essence of the applicants’ case is that in reliance on misleading or deceptive representations made by the respondents to Mr. Patel, Cash Bazaar (a company incorporated by Mr. Patel initially to own his rights against Express Australia) or Mr. Patel on behalf of Cash Bazaar:

(a)    paid $372,000 to Express Australia for 10 RMFs and consequently executed 10 RMF agreements; and

(b)    paid $300,000 for shares in Express Victoria and consequently executed a Shareholders Agreement.

For now, it suffices to provide an overview of the genesis of these agreements and, in broad terms, the alleged misleading or deceptive representations said to have been made with respect to future matters.

The 10 RMF agreements (and the side agreement), the Guaranteed Income Representation and the Capital Gain Representation

17    At the end of 2015 and in early 2016, Mr. Patel negotiated with Mr. Roberts, Scutts Senior and Mr. Arcon (and he also contends, with Ms. Mansfield) to purchase 10 RMF agreements in respect of five home services spread across a defined territory in Victoria from various SMF franchisors. He also negotiated the entry into of a side agreement (the “side agreement”) with Express Australia whereby, on the terms and conditions set out below, Express Australia purportedly agreed to pay Cash Bazaar $2,700 per week for five years. Ten RMF agreements were purportedly entered into by Cash Bazaar on or around 4 February 2016. In respect of each RMF agreement, Cash Bazaar had to pay an “Initial Service Fee” of $37,200 ($372,000 in aggregate). These sums were not paid to each SMF franchisor but to Express Australia. The side agreement was also purportedly entered into on the same day. As it happens, for the reasons set out below, Counsel for both the applicants and Ms. Mansfield and Scutts Junior conceded in closing submissions that all of these agreements were a nullity. That legal reality was only discovered at the trial before me.

18    Mr. Patel essentially claims that he was induced to have Cash Bazaar enter into these purported contracts in reliance on the following representations as pleaded in the applicants’ further amended statement of claim:

(a)    that by investing funds in the purchase of 10 RMFs pursuant to the side agreement, Mr. Patel would receive a guaranteed income of $2,700 per week for five years (this was called the “Guaranteed Income Representation”) (emphasis added); and

(b)    that because the price of the RMFs was increasing each year, Cash Bazaar would be able to sell the RMFs at a future date and Mr. Patel would make a capital gain on his funds invested in the RMFs pursuant to the side agreement (called the “Capital Gain Representation”).

Each of these representations was said to have been made repeatedly on different occasions by the relevant respondents. I shall expand upon this later in my reasons.

19    It was my impression that the case in respect of the Guaranteed Income Representation was pleaded in one way and, in one respect, argued in another way. Before me, the applicants argued that the Guaranteed Income Representation was simply that Mr. Patel would receive a guaranteed income of $2,700 per week for five years by investing funds in the RMFs. Critically, the side agreement did not figure in this revised representation. This discrepancy in how the case was put at trial was not met with any objections. I shall therefore, in the absence of an indication to the contrary, treat the Guaranteed Income Representation as being in the form as argued before me by the applicants. (I otherwise hold the applicants to their case as pleaded with respect to the other alleged representations.)

20    The applicants pleaded that the Guaranteed Income Representation and the Capital Gain Representation were representations as to future matters which were misleading or deceptive. They pleaded that the respondents had no reasonable grounds to make those representations. This was because:

(a)    in the case of the Guaranteed Income Representation, Express Australia did not have sufficient funds to make all the guaranteed payments (which, it was said, could be inferred from Express Australia ceasing to pay the guaranteed income from 2 April 2017 onwards); and

(b)    in the case of the Capital Gain Representation, the price of the RMFs has not continued to increase each year and Cash Bazaar cannot now sell the 10 RMFs to make a capital gain.

21    The applicants also pleaded at [17] of the further amended statement of claim that the conduct of Express Australia alleged in respect of the Guaranteed Income Representation, in all the circumstances, represented to Mr. Patel that if he invested funds in the RMFs with Express Australia, pursuant to the side agreement, Cash Bazaar and/or Mr. Patel would receive $2,700 per week for 5 years as a “passive investor”. As will become apparent, the issue of passivity constituted a central plank in the applicants’ case. Yet, curiously, it was not included as part of the Guaranteed Income Representation (as defined).

The Shareholders Agreement, the Minimum Payments Representations and the Individual Respondent Minimum Payments Representations

22    In early 2016, following a meeting at the Langham Hotel in Melbourne, and a further meeting at the “QPO” café in Kew, Cash Bazaar paid $300,000 to acquire 650 shares in Express Victoria. In that respect, Cash Bazaar entered into a “Shareholders Agreement” with Express Victoria (the “Shareholders Agreement”). Pursuant to this agreement:

(a)    Express Victoria agreed to pay Cash Bazaar $5,000 per month for four years; and

(b)    after four years, Cash Bazaar could offer to have its shares bought back by Express Victoria.

23    Mr. Patel essentially claims that he was induced to purchase shares in Express Victoria and to sign the Shareholders Agreement (on Cash Bazaar’s behalf) in reliance on the following representations as pleaded in the further amended statement of claim:

(a)    that if Cash Bazaar and/or Mr. Patel purchased shares in the proposed business (i.e. Express Victoria):

(i)    the investment would come with a guaranteed minimum income for four years “such that a 3% shareholding would generate a minimum income of $2,500.00 per month, being a minimum 15% per annum return”;

(ii)    a “3% shareholding investment of $189,950.00 would return a minimum of $692,073.00, namely 364% after a period of 2 years”;

(iii)    “any investment less or more than 3% would generate a proportionate decrease or increase in the minimum income paid and the return to be expected”;

(iv)    Express Australia “would pay the guaranteed minimum income payments of the proposed MMF business” (being $5,000 per month for four years); and

(v)    Cash Bazaar could have a “passive role”,

collectively called the “Minimum Payments Representations”.

The Minimum Payments Representations were said to be in writing and contained in a shareholder proposal booklet, the Shareholders Agreement and a financial projection document (described in greater detail below).

24    The applicants also pleaded that Mr. Arcon, Scutts Senior, Ms. Mansfield and Scutts Junior separately and personally represented to Mr. Patel that if he invested funds in the “MMF business proposal” and purchased shares in Express Victoria, he would receive the minimum payment of $5,000 per month for four years (collectively called the “Individual Respondent Minimum Payments Representations”).

25    The applicants pleaded that the Minimum Payments Representations and the Individual Respondent Minimum Payments Representations were representations as to future matters which were misleading or deceptive. As best as can be discerned, they pleaded that the respondents had no reasonable grounds to make those representations because:

(a)    Express Victoria “was not registered until on or about 18 March 2016 and the MMF business proposal was not an established business proposal” at the time the representations were made; or

(b)    alternatively, amongst other things, Express Victoria did not have sufficient funds to make the guaranteed minimum income payments for four years; from about January 2017, Express Victoria stopped making the payments; and Cash Bazaar has not received “a return of 364% per each 3% shareholding” in Express Victoria.

The guaranteed income

26    For convenience, and consistently with the nomenclature adopted by the parties, I will call the purported promises to pay $2,700 per week and $5,000 per month as promises to pay guaranteed income (guaranteed in the sense that payment was not dependent upon the receipt of income from underlying franchisees).

27    It is not in dispute that both Express Australia and Express Victoria have failed to pay Cash Bazaar all of the guaranteed amounts, although, in the case of Express Australia, and as it happens, it was in fact never liable to make such payments. It was not otherwise seriously disputed before me that Express Victoria had breached its obligations under the Shareholders Agreement. The reason for the failure to make the payments would appear to be that each entity ran out of money. Moreover, Cash Bazaar received no fees from any franchisee operating in any of the territories covered by its 10 RMFs. That is because there never were any franchisees. Mr. Patel thought that the selling of franchises was the sole responsibility of Express Australia. In contrast, Mr. Arcon thought that the selling of franchises was the responsibility of Cash Bazaar as the RMF franchisor.

28    It would also appear to have been accepted that many other individuals and companies involved in the Express parties’ franchising arrangements have ended up in the same position as Mr. Patel and Cash Bazaar. I infer that this circumstance has been very distressing to them all. Understandably, these individuals and entities want what they believe is owing to them. I infer that there has been much anger and regret amongst Express franchisors and franchisees. But these feelings do not mean that each is necessarily entitled to a legal remedy or to the same legal remedy. These reasons show why that is so in the case of Mr. Patel and Cash Bazaar.

THE KEY WITNESSES

29    Mr. Patel, Mr. Arcon, Ms. Mansfield and Scutts Junior (the “Key Witnesses”) were all cross-examined over several days. Two other witnesses were called by the applicants to give evidence: a Mr. Ateev Dang (“Mr. Dang”), another person who had entered into agreements with Express Australia and Express Victoria; and a Mr. Kevin Strutton (“Mr. Strutton”), another holder of RMFs and SMFs in Victoria.

30    Given the heavy reliance upon oral testimony by all parties, it is appropriate to commence my consideration of the facts with an explanation of my impression of each of the Key Witnesses. Having said that, where possible I have placed much greater reliance upon the content of the available contemporaneous documents. I have found them to be a far sounder source of reliable evidence in a case where the Key Witnesses have strikingly different memories of what was said in meetings and telephone conversations. That is especially so in the case of the oral testimony of Messrs.  Patel and Arcon. Where appropriate I have drawn inferences from the contemporaneous documents where such inferences accord “with the probabilities of ordinary human experience”: The Republic of Nauru v. WET040 [No 2] [2018] HCA 60; (2018) 93 A.L.J.R. 102 at [35].

31    The same approach was adopted by Kenny J. in another consumer law case concerning franchises. In Sanders v. Glev Franchises Pty Ltd [2002] FCA 1332, what Kenny J. said at [53] is apposite:

In summary, wherever possible, I have sought to resolve conflicts in these witnesses’ accounts by reference to documentary material or the inherent probabilities of the case. Where this has been impossible, it has been necessary to resort to concepts of onus of proof: it was for the applicants to satisfy the court on the balance of probabilities that their version of the events and discussions should be accepted.

Mr. Patel

32    Mr. Patel had previously been employed by IBM in a sales capacity. He was made redundant in 2014. He currently runs an “IT managed services company”. It was an important part of his case theory to emphasise his lack of experience in franchising and to contend that his bargaining power was relatively low when compared to Mr. Arcon, Scutts Senior and Mr. Roberts. This led him, he claimed, to rely more heavily on what they had said to him. He denied repeatedly that he was a “sophisticated business person” or “investor”, or had ever described himself in this way to Express Australia. Mr. Arcon, however, said that this is precisely how Mr. Patel introduced himself to Express Australia.

33    In cross-examination it was revealed that Mr. Patel’s business knowledge and experience was considerable. He holds two M.B.As, one in Marketing and another in Corporate Finance. This should have been disclosed by Mr. Patel in his affidavits. He had previously been a franchisee for approximately four years with a company called First Class Capital. He had been a shareholder and director of a number of companies which carried on businesses with varied success. One business concerned the reselling of furniture; another concerned the importation of medical equipment; and another was for the renting of water coolers. Mr. Patel was also a mentor in the “Small Business Mentoring Service”. This is a Victorian government not-for-profit organisation designed to assist small business people. Mr. Patel, as required, prepared a member profile of himself. Amongst other things, it states:

[Mr. Patel] is a seasoned executive with expertise in enhancing profitability through business development and financial management. His strengths include business planning and strategy, financial management, accounting, sales and market development, market entry, product development and change management.

…

[Mr. Patel] has more than 21 years’ strong business acumen and expertise in business change implementation, developing and implementing profit-enhancing strategies, building ‘green fields’TM business and connecting business with technology. He has a deep knowledge of dairy, consumer goods, energy, telecommunications, building products and agribusiness.

I prefer the foregoing description of Mr. Patel’s experience and abilities than the statements he gave about that issue in evidence before me.

34    My impression of Mr. Patel was that he is an intelligent, confident and relatively experienced businessman. He presented as someone who is capable of: analysing financial data; recognising, assessing and managing business risk; and independently considering business proposals. It is axiomatic that Mr. Patel has a real commercial interest in the outcome of this case. There is considerable enmity between him and Mr. Arcon. He, I infer, considers that he has been duped. At times, in my view, this caused Mr. Patel to exaggerate and embellish his evidence and to assert his position, at times stridently. He repeatedly used key terms, such as the word “negotiation”, to describe his dealings with employees of Express Australia. This was particularly so when he gave evidence about his dealings with Ms. Mansfield. Thus in cross-examination he said:

I was negotiating the duration [of the side agreement] at all times with everyone.

…

I was negotiating with everyone.

With everyone?---At every step of the process.

35    Some of Mr. Patel’s answers in cross-examination I also found to be somewhat argumentative in nature. Perhaps that is understandable given the importance of this litigation to the parties. In my view, Mr. Patel generally tried to give his evidence accurately. However, he nonetheless had a powerful motivation to present his version of what had happened in the most favourable light for the benefit of his suit. I have therefore treated his oral evidence with some caution. That is especially so in relation to his evidence about what he claims Scutts Senior (now deceased) said to him. As Isaacs J. (as his Honour then was) said in Plunkett v. Bull (1915) 19 C.L.R. 544 at 548-549:

… the Court scrutinizes very carefully a claim against the estate of a deceased person. It is not that the Court looks on the plaintiff’s case with suspicion and as primâ facie fraudulent, but it scrutinizes the evidence very carefully to see whether it is true or untrue.

Mr. Arcon

36    Mr. Arcon, who was a director of Express Australia and Express Victoria, was the main voice of those companies before me. He had the difficult task of both presenting his own case and giving evidence. Like Mr. Patel, he was somewhat argumentative when cross-examined. In my view, he was also prone to exaggeration and embellishment, especially in relation to his description of the success of Express Australia’s business. I treated his evidence with an equal degree of scepticism. He had the same motivation to present his version of what happened in a manner that supported his defence of his conduct.

Ms. Mansfield

37    Ms. Mansfield, in my view, presented as an honest witness who did her best to answer the questions asked of her. There was a dispute about her level of responsibility within Express Australia. She deposed that she held two roles in parallel from approximately June 2015 onwards: (i) she was the personal assistant to Mr. Arcon and provided administrative support to him; and (ii) she was a development manager and acted as a “conduit” between the Express Australia sales team and prospective franchisees. In cross-examination, Ms. Mansfield described herself as a member of the “franchise development team” within Express Australia; Mr. Arcon was said to be the leader of that “team”. She said that she “facilitated” the decisions made by that “team”.

38    In contrast, Mr. Patel thought she was a director of Express Australia because her emails identified her as a “Non-Executive Director”. He was adamant that he negotiated with her key elements of the RMF agreements, the side agreement and the Shareholders Agreement. A good deal of his evidence in cross-examination was not objective direct evidence of specific conversations but asserted characterisation of those conversations. This is an area where I think Mr. Patel, perhaps unintentionally, embellished his evidence. A consideration of the contemporaneous evidence supports a finding, which I make, that Ms. Mansfield was not a decision-maker for Express Australia; rather, she implemented the decisions made by Mr. Arcon, Scutts Senior, and Mr. Roberts. She assisted Mr. Arcon in finalising the paperwork for Cash Bazaar’s investments. For that purpose, she liaised between Messrs. Arcon and Patel. I accept her evidence that she did not make changes or suggestions to the RMF and side agreements without obtaining instructions from Mr. Arcon. Indeed, whilst in cross-examination Mr. Patel maintained that Ms. Mansfield made decisions on the “spot”, he conceded that he did not know whether or not Ms. Mansfield first discussed the making of changes to the draft agreements with Mr. Arcon before they were then made. He also conceded that on one occasion Ms. Mansfield expressly stated that she needed to check the pricing of his RMFs with Mr. Arcon.

39    Contemporaneous emails support the conclusions I have reached. For example, one of these shows Ms. Mansfield booking Mr. Patel’s flights to Brisbane – a task which is consistent with the role of an administrator, rather than that of a company director. By way of illustration, in an email dated 3 February 2016, Ms. Mansfield wrote:

Hi [Mr. Patel]

Attached is your itinerary for tomorrow’s travel.

Looking forward to seeing you.

40    Some of Ms. Mansfield’s work was more sophisticated than this but was carried out by her without the need to have recourse to Mr. Arcon. Principally, this included the selection of franchise regions and franchisees for those regions (although none were found for Mr. Patel). However, I would still characterise such work as really facilitative or administrative in nature. Although in cross-examination Mr. Patel asserted that the selection of particular regions would have affected the purchase price of an RMF, he later accepted that the sale price of each of his RMFs was the same.

41    Ms. Mansfield also processed changes to the side agreement that had been negotiated between Mr. Patel and Express Australia. Mr. Patel asserted that he was thereby negotiating the terms of that agreement with Ms. Mansfield. However, the contemporaneous emails and texts which were in evidence do not support that contention (I address this evidence and this contention in more detail below).

42    In that respect, in characterising Ms. Mansfield’s role, I have not overlooked the fact that she has since become a director of a company, or that she was once interviewed in a magazine and purportedly said “[m]y business is called Express Business Group”. Nor have I overlooked Mr. Dang’s evidence that he recalled that, at a presentation in 2016, Ms. Mansfield introduced herself as a “non-executive director”. Mr. Dang did not, however, know what this title meant and there are other aspects of his evidence which made him an unreliable witness (as to which see below). In any event, this evidence is hardly decisive. Moreover, Mr. Strutton, another holder of RMFs and SMFs, described Ms. Mansfield as being initially in a “general administration role” before becoming a “general business manager” who dealt with “payments and new franchises”. He said that he negotiated his contract directly with Mr. Arcon, who he considered to be the “decision-maker”.

43    In my view, Ms. Mansfield was more than just a mere personal assistant to Mr. Arcon. She was a member of the franchise development team and supported that group as a development manager in the ways set out above. I infer that she had to be Mr. Arcon’s eyes and ears at the Express Australia office whilst he was travelling around Australia or overseas. His travelling would appear to have been extensive. But she was not otherwise a decision-maker, save in an administrative and supportive sense.

44    It may be the case that Mr. Patel believed that Ms. Mansfield’s ostensible title was that of a director of Express Australia; I nonetheless do not accept that he sensibly perceived her to be a decision-maker for that company at any stage. I think he knew she really was Mr. Arcon’s assistant, and otherwise worked for him to facilitate Mr. Arcon’s decisions as a member of the franchise development team. In my view, it suited his case against Ms. Mansfield to fix her to be a decision-maker or negotiator – the description of her in her emails as “non-executive director” was used for that purpose as a basis for making this claim. But text messages sent between Messrs. Arcon and Patel at the time show the two of them – and not Ms. Mansfield – negotiating the terms of the deal. There are no equivalent messages sent between Mr. Patel and Ms. Mansfield. The following exchanges between Messrs. Patel and Arcon illustrate the point:

Dec 3, 2015, 9:50 AM

Hi [Mr. Arcon]

Based on our discussions – after discussing all terms – we got the lawyer to prepare the documents – same was sent on 20/11.

We were to wrap up the deal by end November.

On Tuesday you mentioned that you would come back to me with the new entity name.

Could you please update me if next steps.

[Mr. Patel]

— —

Hi [Mr. Patel],

The entity name would be Express business group Australia pty ltd

Your lawyer has drafted some ridiculous clauses and has made it so there is no requirement on your behalf to do anything

So we are guaranteeing you

$140,400 return over 10 years for a $40,000 investment x 5

It’s not the best deal for us so we are working through it

…

Dec 8, 2015, 11:33 AM

Hi [Mr. Arcon]

How are you going with the document review?

[Mr. Patel]

Dec 8, 2015, 7:14 PM

Hi [Mr. Patel]

Happy to offer you a four year minimum income of $270 a week

That’s a minimum return of over $56,000 per regional

Also happy to offer you just one or two regionals

Can be a 10 year term however

— —

Hi [Mr. Arcon]

Thanks for your message. Happy to learn that – number of years of minimum income is the only point to be finalised.

Will run through the PV calculator and come back to you in the morning - hope this is ok.

(Errors in original.)

45    And later Mr. Patel sent Mr. Arcon this text:

Feb 2, 2016, 3:42 PM

Hi [Mr. Arcon]

Have advised [Ms. Mansfield] of the minor changes – she is making the changes

Looking forward to learning of the d

Learning of the lower price.

(Errors in original.)

46    The foregoing texts well evidence the supporting role Ms. Mansfield played. She processed “minor changes” to the agreements. In another text, Mr. Arcon told Mr. Patel that he would instruct Ms. Mansfield to “resend” his itinerary. These types of texts are consistent with Ms. Mansfield’s evidence about her role.

47    The emails tendered into evidence between Ms. Mansfield and Mr. Patel, and upon which Mr. Patel relied, are consistent with her role as an administrative processor of changes to the RMF agreements, which had already been negotiated between Messrs.  Arcon and Patel. I address them in more detail below.

48    Did the appearance of the title “non-executive director” in Ms. Mansfield’s emails give the appearance that she was a director? Without more, the answer is “yes”. But there is more. There is the totality of Mr. Patel’s dealings with Ms. Mansfield as described above (and also below). Mr. Patel must have realised that she was there to assist Mr. Arcon, and was not a decision-maker. That is why he negotiated with Mr. Arcon (and Scutts Senior to a lesser extent). Moreover, Ms. Mansfield did not attend the key meeting at Loganholme described below, where Mr. Patel was introduced to Scutts Senior, and where the essence of the deal was thrashed out. If Ms. Mansfield had been a director of Express Australia, she would have attended this key meeting and have participated in it. But Mr. Patel said she was not there. In all of these circumstances, I find that Mr. Patel did not really believe that Ms. Mansfield was a decision-maker. I also find that she was never a decision-maker for Express Australia.

Scutts Junior

49    Finally, it was my impression that Scutts Junior gave honest and reliable evidence. He played a more active role in selling Express Australia products than Ms. Mansfield, which he did not deny. He did not merely support the decisions made by his father, Scutts Senior, and by Mr. Arcon; he actively sought to promote Express Australia. In the case of Mr. Patel, he was very active in introducing the MMF shareholder proposal to him (described below).

THE FACTS – CHRONOLOGY OF EVENTS

Mr. Patel’s dealings with Mr. Roberts

50    The origin of Mr. Patel’s investment with Express Australia is a little obscure. It would appear to have commenced with a meeting with Mr. Roberts at a café in about August 2015. Mr. Patel explained that he had been looking to invest about $300,000 in an appliance rental franchise. Mr. Roberts suggested that he purchase one or more RMFs. The parameters of Mr. Patel’s investment goals were the subject of dispute before me. Mr. Patel claimed that he wanted:

(a)    guaranteed income;

(b)    capital growth so that he could sell his investment and make a capital gain; and

(c)    an entirely passive investment. In cross-examination, he repeatedly proclaimed that this meant “sit back and do nothing”.

51    Mr. Arcon accepted that Mr. Patel wanted guaranteed income. But he denied that Mr. Patel ever said to him that he intended to sell his investment to secure a capital gain, and he said that Mr. Patel knew that to be an RMF franchisor would require him to work his franchised territory. The contemporaneous evidence in part supports Mr. Arcon’s recollection, although the issue of passivity may have been the subject of a genuine misunderstanding between the parties.

52    The essence of what was initially offered to Mr. Patel is set out in an email he received from Mr. Roberts on 1 September 2015. The email (which contains some questions back from Mr. Patel in italicised text) stated as follows:

I have taken the time to summarise what we have been talking about over the last week.

Regional master franchise:

Regional Master Franchisor’s play more of a management role whereby they are responsible for the growth of franchises within their region and to develop and support their franchisees. A Regional Master Franchisor has exclusive rights to an entire region, such as South Brisbane, North Sydney or Inner Melbourne – what is the term of the exclusive right to the region? Any restrictions on resale of the region?

Regional masters can now also be a passive due to the other support systems we have in place, so just sit back and receive returns, however the more you put into this businesses the faster it will grow and the more income it will bring.

Express takes care of all sales regardless if the investor is active or passive, we currently have 8 full time development managers, 3 of which are based in Melbourne.

Key points

- 18 or so franchise areas per region – this is per category?

- population of over 600,000 – not households?

- guarantee of 3 franchisees to start – these would be located in the region?

- $90 per week from each franchisee

- up to $2,225 commission for each new franchisee – reason for up to?

- minimum 35% ROI per year

- cost is $39,950 + gst

- there are no ongoing fees

We have many investors purchase multiple regional masters and doing so they will usually receive a discount meaning the returns are even greater.– buying five categories in one region should be similar to buying 5 regions for one category– so what would be the discount?

You have said [you’re] looking at investing up to $200,000. Meaning you could purchase 5 regional master franchises.

I would recommend having 5 different businesses, meaning diversification and a huge catchment area for new franchisees.

5 regionals would earn you $1,350 per week in royalties guaranteed, when additional franchises come on board another $90 per week in royalties is earned.

There will also be lots of sales commission to collect along the way. I would expect that we could put on a further 10-15 franchisees for you within the next 12 months.

I have chosen what I think is the best five masters in the best area available in Victoria for you and have attached the maps.

…

(Errors in original.)

53    In an email exchange on 7 September 2015, Mr. Roberts confirmed that each RMF franchisor would receive $270 per week “or until three (3) franchises are sold”. He also wrote that the RMF franchisor did not need to spend money on promotional activities (“[a]s much or as little as you like. Nothing at all if you choose”). However, he also said it would be helpful to Mr. Patel to attend “shopping centre promotions and franchise expos where possible”.

54    On 8 September 2015, Mr. Patel recorded in an email to Mr. Roberts his understanding of the “key points of the offer”. Those points were as follows:

1.    For an investment of $200,000 I would receive Regional Master territories for 5 business/franchise types

2.    Minimum Start-Up Guarantee is $270 per week or until three (3) franchises are sold in and under this agreement

3.    Regional Master can choose to play either a passive role or play more of a management role

4.    Sales of franchises are exclusively done by the Express business development team. Regional Master is not responsible for selling/acquiring franchisees

5.    Promotional expenses – Regional Master can determine the level of promotional activity and/or expenses.

6.    In the event a franchisee surrenders the territory or is terminated the business development team will replace the same at the earliest

7.    There are no ongoing fees

(Errors in original.)

55    Mr. Roberts wrote back as follows: “Everything is spot on! Just don’t forget the gst must be added on”. I note that this email raised the issue of whether an RMF franchisor could “play” either a “passive role” or “more of a management role”. What sort of activities these words connoted was unclear. The term “passive role” was not defined in the email as “doing nothing”. However, at this stage of Mr. Patel’s dealings with Express Australia, I accept that the investment being sold to Mr. Patel offered a franchisor a choice about different levels of involvement. I also accept that at this point Mr. Patel was looking to make an investment that did not oblige him to do very much. I otherwise observe that Mr. Patel’s “key points” did not include the securing of a capital gain but did make it clear that he wanted guaranteed income. I also find that by this email Express Australia led Mr. Patel to believe that it would find franchisees for him. However, subsequent dealings with Mr. Arcon suggest to me that Express Australia may have intended to limit its involvement in finding franchises to the commencement phase of an RMF agreement.

56    Whatever Messrs.  Roberts and Patel thought a “passive role” might have entailed, I find that it was not Express Australia’s position that Mr. Patel could just “sit back and do nothing” (to use the words of Mr. Patel). And that is so, notwithstanding the language used by Mr. Roberts in his emails to Mr. Patel, including the statements “[r]egional masters … just sit back and receive returns” and “Express takes care of all sales”. I accept that this was how the investment was initially “sold” to Mr. Patel. However, I find that this was not the arrangement in fact finally offered to Mr. Patel and which he accepted. In that respect, I note that Mr. Roberts was never called to give evidence by Mr. Patel. I also note that Mr. Roberts seemed to have had only a limited initial role of introducing Mr. Patel to Express Australia and to the concept of RMFs. Thereafter, he dropped out of the picture. Instead, Mr. Patel’s negotiations were principally undertaken with Mr. Arcon (and Scutts Senior to a lesser extent).

57    I also note that it would appear that, in late 2015, Mr. Patel was relying on advice from his lawyers (as to which see below) and from his accountant. He gave key documents relating to the deal with Express Australia to each of these advisers. However, neither was called to corroborate Mr. Patel’s evidence. In a case which was so dependent upon the making of alleged oral representations, the absence of such evidence bears some importance.

The Regional Master Franchise Opportunity Booklet

58    In my view, Express Australia’s concept of an RMF franchisor was that it needed to undertake some work, but, obviously, not undertake the very active work of the underlying franchisees. That concept was set out in a “Regional Master Franchise Opportunity” booklet (the “RMF Booklet”). Mr. Arcon said he met Mr. Patel in Adelaide in the latter half of 2015 (the “Adelaide meeting”) and went through the RMF Booklet in some detail and then left a copy of it with him. In his first affidavit, Mr. Patel neither refers to the Adelaide meeting nor to the RMF Booklet. In his second affidavit, in response to Mr. Arcon’s evidence, he admitted that the Adelaide meeting had taken place but said that it had lasted about 10 minutes. In that affidavit, strikingly, Mr. Patel asserted that his role and obligations were not reflected in the content of the RMF Booklet. The content of the RMF agreements ultimately signed by Mr. Patel do not support that claim (see below).

59    The RMF Booklet was a professional-looking colour brochure of about 22 pages in length. It certainly contained a number of representations made by Express Australia, but none of these have been relied upon by the applicants. It described the role and function of an RMF franchisor. It made it clear that franchising required “hard work”. It recorded:

In a world where our population continues to expand and employment prospects narrow, franchising has become one of the safest, most viable methods of operating a successful business. Franchising is not a get rich quick scheme. It requires hard work, discipline and the dedication to effectively follow the systems of the franchisor. It does, however, return excellent rewards, both financial and personal, to anyone willing to adhere to those systems.

60    It described the general responsibilities of Express Australia in the following terms:

It is important for a franchisee to know that if he or she encounters a problem, however small or large, there will always be someone available to offer advice and assistance.

One of the unique benefits of the Express Business Group network is that all of our key personnel have had extensive experience in a particular franchise system. From our Managing Director down, all have reaped the benefits of hands-on experience and for that reason, can offer real and practical answers to all queries.

Backup and support is provided in many ways including regular meetings, informative newsletters and memos, extensive advertising will continue as we build our network and customer liaison. Ultimately, we are all part of one team striving for collective success.

Our support personnel administer the following areas:

•    Prospecting

•    Personal franchisee liaison

•    Customer liaison

•    Quality control

•    Customer service

•    Accounts and taxation

•    Advertising and promotions

•    Franchise development

•    Training

•    New products and services

This kind of backup not only benefits the franchisee but also helps to establish Express Business Group’s reputation as one of the best franchise networks in the world in terms of service, support and future development.

61    Express Australia’s “proposal” was that each RMF franchisor would: establish franchisees; provide training to those franchisees; administer his, her or its own region; and consult with Express Australia. The “responsibilities of the RMF owner” were described in the RMF Booklet in the following terms:

The RMF will be responsible for five main roles[:]

1.    Primarily to establish, grant and train Express Business Group Franchisees in the area.

2.    To build relations and develop clients from the community within the region.

3.    To provide ongoing training, monthly meetings, newsletters (provided by Express Business Group) and all additional backup and support required by the Franchisee to build a strong and supportive team in the region.

4.    To administer the region including the keeping of records and the collection and processing of royalties and advertising levies.

5.    To advise and consult with Express Business Group on the most appropriate use of any advertising and promotional funds in order to generate new Express customers and franchises.

62    In contrast, the RMF Booklet described Express Australia’s obligations in relation to each RMF franchisor in the following terms:

a)    Express Business Group will train the RMF in all aspects of training, sales, support and in the general setup and running of the Regional Master Franchise.

b)    Express Business Group will provide the RMF procedural and training systems and supply sales aides including PowerPoint presentations, prospectuses, agreements, disclosure documents and relevant stationery.

c)    Express Business Group will place and pay for advertisements on seekcommercial.com.au for the first 3 months of operation or until the first franchise is established (to a maximum of 3 months).

d)    Express Business Group will provide newsletters, meeting formats and guides, updates, training on new services, copies of promotions and television commercials and generally assist in all ways in the development of the RMF’s business.

f)    Express Business Group will provide the RMF with regular meetings with the Express Business Group team.

(Errors in original.)

63    Because of the responsibilities of an RMF franchisor, the RMF Booklet stressed the need for franchisors to be trained. It stated:

To enable franchisees to gain the most from their business, thorough training is essential

All training is conducted by qualified operators already working in the field. In this way our trainers have a thorough understanding, not only of the business but the needs of new franchisees as well.

You will spend time both in-house and in the field learning on the job. You will receive instruction on all administrative procedures including:

•    Building your business

•    Accounts and basic bookkeeping

•    General procedures

•    Care and maintenance of equipment

•    Dress standards and the professional image

•    Daily and weekly planners and analysis

•    Insurance

•    Customer service

•    Prospecting

•    Quoting

•    Marketing

•    Upselling

•    Banking procedures

•    Product use

•    Mobile phone and answering service

•    Dealing with customers

A complete Operations Manual is provided, which gives clear and concise instructions on all subjects from practical procedure to effective planning and bookkeeping. Ongoing training is provided on request, while periodic seminars and product demonstrations provide up to date information for all franchisees.

64    The RMF Booklet summarised the returns an RMF franchisor might earn in the following terms:

1. Granting Express Mobile Services Franchises

An area may have up to 18 franchisees. The Regional Master Franchise receives 50% of the profit from the sale of each franchise;

Average price of each franchise granted = $6,950

RMF receives 50% of profit from each sale = $2,250

Number of franchises granted = 18

Total profit returned to RMF = $40,500

‘Please note’ that these figures relate to all franchises being sold. This may take 1-5 years. These figures are based on the current average franchise price of $6,950 although it is likely that the average price will rise to $9,950 in time giving the RMF an extra $2,000 on each franchise granted.

2. On Going Royalties Paid to RMF

The RMF will receive 50% of all royalties paid by all Franchisees throughout the region. Weekly royalties are currently set at $180 per week;

Current Royalties paid by each franchise = $180/week

RMF receives 50% of all Royalties = $90/week

Number of franchises granted = 18

Total profit returned to RMF = $1,620/week

‘Please note’ that these figures relate to all franchises being sold and are based on absolute minimums. This may take 1-5 years.

‘Please note’ that this is an example only and the number of franchises may vary depending on the division.

65    The RMF Booklet also emphasised the importance of the RMF agreement that would be entered into by each RMF franchisor (referred to as the “franchisee” in the quote below) and each head franchisor. In amplification it recorded:

It [(i.e. the RMF agreement)] is a legal document and you should clearly understand it before proceeding with your franchise. The Agreement states clearly the terms and conditions of the granting of a franchised area. Listed below are some of the more important points to consider:

The grant:

Express Business Group grant the franchisee the exclusive license to operate in the exclusive territory shown and outlined on an attached map.

The terms:

The term of the Agreement is 5 years with options to renew for a further 5 years with no additional cost to the franchisee. The option to renew is yours, not Express Business Group’s.

Supplies and products:

Express Business Group has established approved suppliers and products. However, you may purchase supplies from any approved business provided that you can demonstrate to Express Business Group that the company is reputable and guarantee product insurance and quality control.

Franchise fees:

The Franchise Agreement shows that the current franchise fee is fixed at $180. It also shows that these fees are paid weekly and will not increase during the term of the agreement.

Obligations of Express Business Group:

Listed here are all the things that Express Business Group must do or help you with, such as daily management, advertising, promotions, training, record keeping, administration, new product training, marketing and general professional advice on running a profitable business.

Compliance by the franchisee:

The franchisee agrees to take out suitable insurance cover, abide by the current policies of Express Business Group, maintain high standards of workmanship as set out in the training period, conduct his or her business in a prudent and businesslike manner, use his or her best efforts to protect trade secrets and confidential copy-written information and to pay fees on time.

Total investment:

The Agreement shows the full and total investment payable to Express Business Group.

Trademarks:

All trademarks belong to Express Business Group.

Sale of franchise:

The area may be sold at any time provided that the franchisee pays any outstanding monies due, the franchisee is not in default of the Agreement and the new franchisee completes a current application form and a new Agreement. The new franchisee must be approved by Express Business Group.

Termination by Express Business Group:

If the franchisee becomes bankrupt, continually fails to meet quality control standards or continually fails to pay monies to Express Business Group, termination may occur.

Termination by the franchisee:

The franchisee may terminate the Agreement at any time by writing to Express Business Group giving 30 [days’] notice. You may also cancel the Agreement within seven days of the date of the Agreement, with a full refund of the total investment less 10% which is allotted to expenses.

Restrictive trade clause:

This clause is designed to protect all members of Express Business Group. It therefore states that should a franchisee leave, he or she may not operate a business that is the same or similar to any of Express Business Group systems for a period of twelve months within a 100 km radius of the franchised area.

Summary:

We believe that the Franchise Agreement is fair and benefits both parties. It is written, for the most part, in plain English to help avoid confusion. However, should you decide to proceed with an Express Business Group franchise, you should take the entire Agreement to your solicitor for total peace of mind.

66    In a section entitled “Summing Up”, the RMF Booklet posed the following questions which it suggested should be answered by a prospective RMF franchisor:

To help you assess whether our business is right for you, ask yourself the following questions. Answer them as honestly as you can:

  1.    Do I sufficiently understand franchising and what is involved?

  2.    Am I suited physically and temperamentally for self employment?

3.    Will my age and health permit me to operate the business successfully?

  4.    Do I have the maturity to run my own business?

5.    What are my natural aptitudes and skills? Does this opportunity match them?

  6.    Do I mix well with people?

  7.    Will I be able to manage Franchisees and others if I need to?

  8.    Do I have the ability and commitment to work hard?

  9.    Will my family support me in this business?

  10.    Can I raise sufficient finance?

  11.    Can I accept the disciplines of a franchise system?

12.    Finally, do I possess sufficient ability to exercise initiative and to capitalise on the opportunities presented to me?

67    The content of this document is directly inconsistent with Mr. Patel’s “sit back and do nothing” concept. It more properly reflects the terms and conditions of the RMF agreements that Mr. Patel signed (as to which see below). I am not satisfied that Mr. Arcon only spent two to three minutes going through this booklet at the Adelaide meeting, as Mr. Patel contended in cross-examination. That contention is inherently unlikely. The RMF Booklet would not have played such a subordinate role. Given the contents and format of the booklet, it was plainly a key document used to attract prospective RMF franchisors. More importantly, contrary to Mr. Patel’s assertion that he was never given a copy of it (as he asserted in his second affidavit), I think it is far more likely that Mr. Arcon left the RMF Booklet with Mr. Patel to read (as Mr. Arcon said). That is what a salesperson would do. I also infer that Mr. Patel read it and, by reason of his qualifications and experience, understood what it was saying.

Advice obtained by Mr. Patel in relation to a draft version of the RMF agreements

68    It would appear that at some point in late 2015, Mr. Patel received from Express Australia a version of a standard RMF agreement (to be entered into between an SMF franchisor and an RMF franchisor) and gave this to his lawyers to obtain advice. In cross-examination, Mr. Patel confirmed that he had retained a copy of this draft. Mr. Callanan made a call for it to be produced. It was never provided. However, I can deduce some of its contents from the advice Mr. Patel received from his lawyers by email on 1 October 2015. That advice records that Mr. Patel had asked his lawyers to review the “franchise documents … with regard to the key issues identified by [Mr. Patel]”. I find that the standard RMF agreement given to Mr. Patel contained clauses which were inconsistent both with Mr. Patel’s wish to “sit back and do nothing” and with Mr. Roberts’ confirmation that an RMF franchisor could choose to adopt a “passive” role. That is because the draft was found by his lawyers to be “more consistent with the typical master franchisor–sub franchisor–sub franchisee type arrangement”. As a result, Mr. Patel’s lawyers suggested that there was a need to make “extensive amendments” to the draft agreements as the “next step”. Mr. Patel’s lawyers thus wrote:

We note that your intention is to have a passive investment role only, with only minor marketing and training obligations.

In their email correspondence to you, [Express Australia] advised that no specific level of promotional activity was required from you and “no investment is expected, it is up to yourself if you want to advertise or promote”. In addition, when you sought confirmation that sales of franchises was exclusively managed by the Express business development team (i.e. you were not responsible for selling/acquiring franchisees), Express agreed with this statement.

Clause 6.4 and 6.5 of the [Regional Master Franchisor Agreements (the “RMFAs”)] require you to establish a certain number of franchises beneath you during each year of the term. The RMFA does not contain any reference to assistance being provided by [Express Australia] or the Master Franchisor in this regard other than clause 5.3, under the sub-heading “Initial obligations”, which simply provides that the Master Franchisor will provide advice regarding the establishment of the first franchise within the territory.

In addition, clause 6 of the RMFAs imposes several management type obligations on you including, but not limited to, using your best endeavours to increase turnover of franchises within your territory and ensuring that all franchisees comply with the relevant franchise system.

The current drafting of the RMFAs is more consistent with the typical master franchisor–sub franchisor–sub franchisee type arrangement where you (as Regional Master Franchisor) would be deemed to be the Franchisor of the franchisees beneath you.

69    Any redrafted RMF agreement was not before me. But I infer that it existed and was sent to Express Australia, which rejected it. That inference arises from the following text sent by Mr. Arcon to Mr. Patel on 3 December 2015:

Your lawyer has drafted some ridiculous clauses and has made it so there is no requirement on your behalf to do anything

70    This text suggests that Mr. Patel was receiving legal assistance right up until December 2015. He thereafter claimed that he reviewed and negotiated the RMF agreements and side agreement without any legal assistance at all. Mr. Arcon’s evidence was that Mr. Patel sent the Express Australia draft agreements to his lawyers and accountants who reviewed them. He also said that Mr. Patel phoned him several times to ask various questions in relation to the Express Australia business and the draft RMF agreements. According to Mr. Arcon, Mr. Patel would often tell him that such questions were posed at the behest of his lawyers and accountants. No explanation was given to the Court as to why, as alleged by Mr. Patel, he stopped using his legal advisers to assist him in negotiating the terms of the RMF agreements. Having regard to their earlier involvement, which included drafting an alternative agreement, it is difficult to accept that they had been excluded entirely by Mr. Patel at the crucial stage of negotiation in January 2016. Moreover, Mr. Patel failed to produce, when it was called for, the first draft of the RMF agreements which he sent to his lawyers. Based on the material before me, I infer that Mr. Patel did not fully disclose the involvement of his lawyers in advising him about his investment with Express Australia. That inference is all the more strongly drawn by Mr. Patel’s failure to meet the call for the draft RMF agreements: Jones v. Dunkel (1959) 101 C.L.R. 298 at 320-321.

71    The legal advice also suggested that the guarantee as to income should be provided by Express Australia, and not the “relevant Master Franchisor”. This was because the “relevant Master Franchisor” was itself “reliant on the royalties received from franchisees and Regional Master Franchisors like you”. In contrast, it was said, Express Australia was “better placed to support such a guarantee” by reason of its “various sub-franchising arrangements”. This, I find, is the genesis of the “side agreement” ultimately signed by Mr. Arcon for Express Australia and by Mr. Patel.

72    The advice also called for a form of due diligence to be undertaken. Mr. Patel’s lawyers wrote:

If [Express Australia] are agreeable, we would then require the contact details for the appropriate [Express Australia] representatives whom are authorised to negotiate the proposed amendments. As a starting point, we would also require the following documents and information which have not been provided by [Express Australia] to date:

•    the proposed franchise agreements which the franchisees beneath you will be expected to sign as well as the disclosure documents which will be provided to such franchisees;

•    the date and commercial terms of the ‘verbal licence’ granted to the ‘Head Franchisor’ in respect of the IP used in the franchise operations. For your reference we note that:

•    Section 7 of each of the disclosure documents provided to you states that the Head Franchisor (Express Mobile Services Australia Pty Ltd) has been granted a ‘verbal licence’ to use trademarks 15614026, 1551947 and 1625563 in respect of the words and image “Express Mobile Services” (Express IP) by Express Business Group Pty Ltd (formerly known as Express Mobile Services Pty Ltd); and

•    ASIC’s records show that Express Mobile Services Australia Pty Ltd changed its name to Express Business Group Australia Pty Ltd on 9 September 2015.

•    a copy of the Compliance Program that [Express Australia] was required to implement within 12 months of their undertaking to the ACCC (dated 20 August 2014) as well as evidence that this has been reviewed by an Independent Reviewer (as required by the ACCC); and

•    financial reports for [Express Australia] in respect of each of the last 2 years (clause 20.2 of the disclosure documents references financial reports but [Express Australia] only provided a letter from their accountants dated 29 October 2014 stating that an audit of financial statements was in progress).

Please note that the above list is by no means an exhaustive list and depending on the further information provided by [Express Australia] and any future discussions with [Express Australia], more information and documents may be required. We draw your attention to the above list at this initial stage.

73    It is unclear to me whether any of this particular initial due diligence took place. In Mr. Patel’s second affidavit he stated that he had never received the financial accounts of Express Australia, and that only the “initial documents” were sent to his lawyers, and that he “simply proceeded on the basis of the representations made to [him]”. In contrast, Mr. Arcon gave evidence that the due diligence was “extensive”. I infer that some form of due diligence took place. For one thing, in an email sent by Mr. Patel to Mr. Arcon on 6 February 2017, Mr. Patel himself refers to “the due diligence (prior to purchase)”. He also in fact received the financial accounts (see below), which in cross-examination Mr. Patel said his lawyers had requested.

74    I finally note that the lawyers’ email did not address in any way Mr. Patel’s object of seeking a capital gain. And that is so, even though the advice was expressed as covering the “key issues” identified by Mr. Patel. The legal advice simply recorded that Mr. Patel’s objective was to have an ability to assign his RMF agreements to a related body corporate or as part of a change in the structure of his ownership interests “by taking on new partners”. There is no legal advice, for example, about the need for a warranty about capital growth to be inserted into a draft of the RMF agreements. Indeed, I have found no contemporaneous document which evidences Mr. Patel’s capital gain objective, save for one email sent about a year after Mr. Patel (on Cash Bazaar’s behalf) purportedly entered into the 10 RMF agreements.

75    The contemporaneous documents before me show that the next steps included the following:

(a)    On 16 October 2015, Mr. Patel received a “Franchisee Update” which, amongst other things, addressed a concern raised by Mr. Patel’s lawyers about an ongoing investigation into Express Australia by the Australian Competition and Consumer Commission (the “A.C.C.C.”). The “Update” recorded that the A.C.C.C. had required Express Australia to appoint a “Compliance Officer” to oversee all systems, policies and procedures and to undertake a full independent review of Express Australia’s compliance program. The “Update” confirmed that an initial review had at that time been completed.

(b)    Mr. Patel’s lawyers prepared a draft “General Security Deed” to be entered into by Express Australia and Cash Bazaar. This draft required Express Australia to grant Cash Bazaar a security interest in “all of its property” including “Personal Property” (as defined) and a charge over Express Australia’s “Other Property” (as defined) to secure the payment of all monies owing by Express Australia to Cash Bazaar under the RMF agreements. Both Scutts Senior and Mr. Arcon rejected this draft deed entirely. It was never entered into.

(c)    On or about 21 October 2015, Mr. Patel was given a copy of a letter written to Mr. Arcon by Mr. Matanovic of “Vincents”, a firm of chartered accountants. The letter was provided to allay concerns held about the financial strength of Express Australia at a time when the accounts for the year ended 30 June 2015 (the “2015 accounts”) had yet to be finalised. The letter simply stated that “from the information gathered to date, the company traded strongly for the year ended 30 June 2015”. Critically, the “company” referred to was not Express Australia but rather Express Business, being the company that owned the Express Intellectual Property.

(d)    In his affidavits, Mr. Patel did not disclose the receipt by him of the 2015 accounts before he signed the RMF agreements and the side agreement. However, during his cross-examination, it was revealed that Ms. Mansfield had sent these to him by email on 6 November 2015. That email was tendered in evidence. Notwithstanding Mr. Patel’s claim that he did not recall seeing the 2015 accounts and that he simply forwarded all documents to his lawyer, I infer, given Mr. Patel’s qualifications and experience, that he read these accounts and understood them well. That inference is supported by the size of the investment he was about to make. His income could only practically be guaranteed to the extent of Express Australia’s financial capacity to make such payments. Moreover, whilst never disclosed in his affidavits, I also infer that Mr. Patel or his accountant used a mathematical calculator of some kind to ascertain the present value of the income flows he hoped he would secure from his proposed investment. The text messages set out above record Mr. Patel referring to him running numbers through “the PV calculator”. The reference to “PV” is, I infer, a reference to “present value”. That Mr. Patel, or his accountant, would have used such a calculator is unsurprising given the offer of guaranteed money and given his expertise. It is also consistent with Mr. Patel’s case that all he really wanted to purchase was a guaranteed income stream. In contrast, in cross-examination, it became clear that Mr. Patel never had any real interest in receiving franchise income.

76    There was some debate before me about the accuracy of the 2015 accounts. Mr. Arcon claimed that they failed to disclose greater amounts of income (said to have been subsequently uncovered in an audit undertaken by officers of the Commissioner of Taxation). Mr. Patel’s Counsel, Ms. Sparke, Q.C., also claimed that they were unreliable and did not separately identify revenue earned in Victoria. I am not in a position to judge the correctness of the 2015 accounts. The material before me did not permit me to reach any conclusion about that issue. Nor was that material sufficient to overcome the effect of s. 1305 of the Corporations Act. It follows that the accounts were received in evidence as being prima facie correct. In any event, Mr. Patel received them in November 2015 and they recorded for the year ended 30 June 2015 total sales of $14,444,028 and retained earnings of $683,764. The previous year recorded total sales of $6,818,003 but a loss of $36,453. The accounts also identified Scutts Senior and Mr. Arcon as directors of Express Australia.

The meeting in Loganholme and the alleged representations as to capital growth and guaranteed income

The conflicting evidence

77    Both Messrs.  Patel and Arcon gave evidence about another meeting they had in late 2015. Mr. Patel said that he attended a meeting with Scutts Senior and Messrs.  Arcon and Wakefield in November 2015 (although it may have been in December) in Loganholme in Queensland (the “2015 Loganholme meeting”). This was a key meeting. What was said at it was not documented and so I must rely on the memory of Messrs.  Patel and Arcon to determine what was said. Mr. Patel stated in his first affidavit that Express Australia rejected his General Security Deed at the 2015 Loganholme meeting. He deposed that the following representations were made to him:

22.    [Scutts Senior] said words to the following effect ‘if you invest in RMFs you will experience capital growth as the value of RMFs is growing and will grow over time’ and ‘… you are already paying more than the price the RMFs were selling a year ago’.

…

28.    To resolve this concern of protecting the capital investment and guaranteed payments, [Mr. Arcon] said words to the effect that ‘to resolve this issue, we will provide a side agreement from Express that will set out the guaranteed income payments being offered’.

29.    [Mr. Arcon] assured me that I need not worry about the guaranteed payments and said words to the effect, ‘Express will pay the guaranteed payments every month even though the RMF contract is with the State Franchisor’.

30.    [Scutts Senior] nodded his head and agreed to provide the side agreement and said words to the effect, ‘we always live by our payments, you can check with anyone’.

78    Mr. Arcon’s recollection of this meeting was different. He deposed that he did not hear Scutts Senior make some of the statements attributed to him. As to the issue of capital value he said:

[Referring to [22] of Mr. Patel’s affidavit reproduced above] I did not hear that Mr Scutts’ sale was attributed to him, it makes no sense that he would say those words as the value of the RMFs was subject to the number of franchisees which were operated within their [particular] territory. By way of example, if the RMF agreement was purchased for $39,950 without any franchisees in the Territory producing income for the regional Master franchise and subsequently franchisees are trading with the territory then the value (and sale Price) of the RMF would increase.

In respect of the alleged statement that the RMF was more than the price of the RMF’s that was selling a year ago, whilst I do not specifically recall that statement being made by [Scutts Senior], that statement was true. I say that as Express was previously selling the RMF’s for initially $19,950, the price was later increased to $29,950 and increased prior to Mr Patel purchasing the regional master franchise for $39,950.

(Errors in original.)

79    As to the statements said to have been made by Mr. Arcon, his affidavit evidence was as follows:

[Referring to [28] of Mr. Patel’s affidavit reproduced above] I deny the statements attributed to me. The clauses in respect of guaranteed income were previously in the RMFs (for other regional Master franchises sold by express), however, Mr Patel requested that a separate document be prepared that set out the terms of the agreement.

[Referring to [29] of Mr. Patel’s affidavit reproduced above] this statement was in the context of Mr Patel complaining to me that he did not want 10 different payments from 10 different state Master franchisors rather he wanted a single payment. I explained to Mr Patel that notwithstanding the terms of the franchise agreements, Express manage the payments from the franchisees and distributed those payments to each respective state Master franchisor and regional Master franchisor such that the First Applicant would only receive one lump sum payment of the week.

(Errors in original.)

80    In cross-examination, both Messrs.  Patel and Arcon maintained their respective recollections of the 2015 Loganholme meeting. None of their answers increased the likelihood of one recollection being preferred over the other. That is because each, I find, gave answers that suited their respective positions. They were advocating rather than giving evidence. No other witness, such as Mr. Wakefield, was called by either party to corroborate which version of events I should prefer. In those circumstances, I make the following findings in respect of the 2015 Loganholme meeting.

Findings in respect of the alleged representations regarding the capital value of the RMF agreements

81    I find that Mr. Patel has not proven on the balance of probabilities that a representation was made about any particular likely growth in the capital value of the RMF agreements at the 2015 Loganholme meeting. It may nonetheless be inferred that the issue of capital value was probably discussed. Unspecific or highly generalised opinions about the future prospects of an investment are commonly made when selling a product. Mr. Arcon, an able salesperson, is likely to have made such statements, especially if the issue had been raised by Mr. Patel. But it is objectively improbable that a specific and unqualified representation about capital growth would have been given by Express Australia. No contemporaneous evidence pre-dating the RMF agreements signed by Mr. Patel supports the making of such a statement (save for a change made to the RMF agreements, which I address below). In any event, the statement that Mr. Patel claimed had been made, namely that “you will experience capital growth”, is so highly generalised as to have little, if any, meaning. If it had been made, I would have characterised it as puffery, or as no more than an expression of optimistic expectation.

82    I accept that a statement was made to Mr. Patel that investors in RMF agreements were already paying more than the previous year’s price for RMF agreements. However, there is no evidence to suggest that it was not accurate. Moreover, in 2017, Mr. Patel conceded that his RMF agreements had grown in value in the way he expected. In an email sent to Mr. Arcon on 6 February 2017, Mr. Patel wrote:

During the sales process you had mentioned that each year the value of the RMFs would increase. I am also pleased to note that the recent price of RMF confirms this (expected) growth in capital value that you had mentioned (price of RMF was confirmed to me by James Eilermann [(a director of Express Victoria)] during our meeting on September 13, 2016).

(Errors in original.)

Findings in respect of the alleged representations regarding guaranteed income

83    I also think that it is probable that generalised statements, such as a claim that Express Australia “always lives by our payments”, were probably made to Mr. Patel. But, again, such statements are really puffery, and no substitute for a hard examination of the results of a due diligence. I think that Mr. Patel, with his two M.B.A.s, would have shared this view. Mr. Patel, I also find, would have appreciated the risk that Express Australia might in the future default on its promise to pay guaranteed income. He initially sought to mitigate that risk by requiring Express Australia to enter into the General Security Deed, which he paid his lawyers to prepare. It is a reasonably detailed document. If it had been entered into, it would have made Mr. Patel or Cash Bazaar a secured creditor of Express Australia. However, Scutts Senior and Mr. Arcon rejected that agreement entirely. At that point, Mr. Patel could have walked away. He did not. Rather, he continued to negotiate with Express Australia. Whether Mr. Patel sought to address his exposure to risk in other ways, such as seeking a lower purchase price, I do not know. But, in this context, I do not consider that the highly generalised statements alleged by Mr. Patel to have been made were seen by him as a serious substitute for the rejected General Security Deed.

84    I find that a proposal was put to Mr. Patel at the 2015 Loganholme meeting to enter into a side agreement which would include a promise to pay guaranteed income. The proposal outlined at that meeting (and the one earlier outlined by Mr. Roberts) formed part of a longer negotiation with a view to entering into formal written agreements. They were invitations to treat and no more. In other words, a formal offer had not crystallised at that point in time. An offer to enter into a side agreement was in fact made at a later time and was ultimately accepted by Mr. Patel and Cash Bazaar (although, for the reasons given below, the side agreement was not legally efficacious).

85    In closing, Ms. Sparke, Q.C. contended that there is a distinction between, on the one hand, making a representation that guaranteed income will be paid and, on the other hand, the making of a proposal to enter into a contract which will contain a promise to pay guaranteed income. The former was said to apply here; more specifically, that Express Australia had represented to Mr. Patel – through Mr. Arcon and Scutts Senior – that it would pay guaranteed income to him. In my view, there is a world of difference between: (i) a freestanding and unqualified representation that guaranteed income will be paid; and (ii) the outlining of a proposal to enter into a written contract, made all the more attractive because it will contain a promise to pay guaranteed income. A difficulty with the drawing of this distinction in practice is that it requires one to know with great precision what was truly said and conveyed by the representor. In that respect, what was said at the 2015 Loganholme meeting is in dispute. To illustrate the difficulty, I refer to two passages of cross-examination. When Ms. Mansfield was cross-examined about the alleged contention that she had told Mr. Patel he would receive guaranteed income, she replied by referring to the side agreement (which the witnesses often called the “letter”, “side letter” or “guarantee letter” in oral evidence). Thus:

And in your discussions that you had with Mr Patel, you told him, did you not, there will be guaranteed income of $270 a week?---Yes, because there is a letter that states that.

Well, you say that now. I’m suggesting to you that you said to Mr Patel there will be guaranteed income, $270 a week?---Yes, because it was told to me that that was part of his sale process, that there would be an income guarantee.

86    In other words, her evidence was that Express Australia had proposed to enter into a side agreement which contained a promise to pay guaranteed income. In contrast, Mr. Patel claimed that he had received separate and distinct oral representations about the payment of guaranteed income which he said he relied upon; he said he never relied upon the agreements he had signed because he relied on the word of Scutts Senior, Mr. Arcon and Ms. Mansfield. Thus, in cross-examination the following exchange occurred:

And you maintain that you just had to sit back and do nothing?---That’s what I was told at every conversation. I relied on the oral promises when I did this transaction. I did not - - -

Clause - - -?--- - - - rely on a RMF agreement. I relied on oral promises made to me.

87    On another occasion, Mr. Patel said something very similar in relation to his conversations with Ms. Mansfield which is in stark contrast to Ms. Mansfield’s evidence. Thus, during Mr. Patel’s cross-examination the following exchange occurred:

Okay. Thank you. When she said that she guaranteed you would be paid, I take it she was saying in accordance with the side letter that’s going to be entered into?---The sentence finished at, “We guarantee you will be paid.” It was never in accordance with the letter ... “You will be paid $2700 a week.”

88    In light of the above, in my view, the applicants never established on the balance of probabilities that a freestanding and unqualified representation that guaranteed income would be paid was made to Mr. Patel. I have no sensible basis for preferring Mr. Patel’s uncorroborated oral evidence over the uncorroborated oral evidence of the other witnesses, including Ms. Mansfield. I find it objectively improbable that Express Australia would have made a representation about the payment of future income independently of, or divorced from, its proposal to enter into the side agreement. Rather, it is more likely that any discussion about guaranteed income would have formed part of a negotiation entered into by Mr. Patel with Mr. Arcon and others. It was common ground that some prior RMF agreements had contained a form of promise to pay guaranteed income. Mr. Patel’s concern was to make Express Australia liable to make that promise (rather than, for example, an SMF franchisor). His concern was addressed by the side agreement which he entered into with Express Australia in February 2016. In other words, at the 2015 Loganholme meeting held in late 2015, statements made about the payment of guaranteed income were not representations about future matters in the way contended for by Mr. Patel, but preliminary invitations to enter into a formal contract, which had yet to be executed and which depended on the parties agreeing to the terms of the RMF agreements. It follows that I find that Mr. Patel has not demonstrated that representations were made to him promising the payment of guaranteed income, which were distinct or independent from the process of negotiating the very written instrument within which the parties intended to place that promise. I shall return to this issue below.

The alleged representations made by Ms. Mansfield respecting the RMF agreements

89    Mr. Patel also alleges that Ms. Mansfield made a series of representations to him over the phone concerning guaranteed income, capital growth and the passive nature of his investment in January 2016. None of these representations may be found in any contemporaneous document. Their existence turns upon only Mr. Patel’s recollection of events. In Mr. Patel’s first affidavit, he deposed that Ms. Mansfield made the following representations to him:

(a)    that “there [were] several Regional Master Franchisors and State Master Franchisors who have been receiving guaranteed income” and “[Mr. Patel’s] investment would grow in value and while [it was] growing [he would] enjoy a guaranteed minimum income of $270.00 per week for each RMF”;

(b)    that 10 RMFs were available and the value of those RMF would “grow over time” as there was “a focus on selling franchisees in these RMFs”;

(c)    that the value of the RMFs had increased each year and that “after a few years” Mr. Patel could “sell the RMF to recover your capital and enjoy capital growth”;

(d)    that the RMFs were, at the relevant time, offered at $39,995 each and over five years these would “more than double” in price;

(e)    that Mr. Patel would receive a guaranteed income of “$270 per week per RMF” and that “no participation [would] be required” from Mr. Patel; and

(f)    that Mr. Patel should not be worried because the side agreement could be amended to reflect that even if “franchisees were to leave the [Express Australia Group], the guaranteed monthly payments would continue to be made by [Express Australia]”.

90    Ms. Mansfield denied making any of the representations attributed to her by Mr. Patel. She said that her role was limited to document preparation and other administrative tasks. She said she would not have engaged in a conversation with Mr. Patel about the capital growth of the RMFs; if asked about this, she would have referred him to Mr. Arcon. Nor would she have discussed the purchase price of RMFs. She said she was careful not to say anything that was contrary to the documents being prepared. She denied saying that no participation would be required from Mr. Patel, as this was inconsistent with her understanding of the “Express Model” which required RMF franchisors to actively support the franchisees who were performing the services on a day-to-day basis.

91    Both Mr. Patel and Ms. Mansfield maintained their recollection of events in cross-examination. Mr. Patel remained fairly argumentative. He said that Ms. Mansfield was able to respond to any changes he wanted to the RMF agreements and the side agreement promptly, without the need to consult with Mr. Arcon. I doubt that this was so. He also seemed determined to demonstrate that Ms. Mansfield had “negotiated” with him over a number of issues, including the number of RMFs he was to purchase even though this had earlier been discussed with Mr. Arcon. The following exchange in the cross-examination of Mr. Patel illustrates the point:

Now, in truth, the number of RMFs had been earlier agreed between yourself and [Mr] Arcon. Do you agree with that?---It was discussed. Buying something and selling something is a process. At every step of the process, things have to be validated and confirmed.

Do you agree that prior to these dealings with [Ms] Mansfield, the number of RMFs that you were purchasing had been agreed between yourself and [Mr] Arcon? Yes or no?---Cannot answer that in yes or no. The number of RMFs discussed were 10. The price wasn’t determined at that stage.

The last answer was, in my view, evasive.

92    In cross-examination, Mr. Patel maintained that Ms. Mansfield was a controller of the side agreement. His evidence (in which Ms. Mansfield is called “Jai”) was as follows:

That’s what – yes, that’s what I was - - -?---So Jai was a non-executive director. She had an influence in – she was controlling the agreement letter that I was going to get, not [Mr. Arcon]. The agreement letter was very critical for me.

But what was – what was she controlling?---Drafting, delivery, negotiation of the agreement letter. It - - -

But what - - -?---She was – she was – she was drafting the letter; she was going to give me the letter; it had the territories on it, the maps on it, which businesses on it. The only thing I’m dealing with [Mr. Arcon] is the price. So there were two or three crucial elements here with Jai and one with [Mr. Arcon], but they’re both important stakeholders, board directors.

So what are the three things you’re negotiating with Jai?---The guarantee letter – yes, because [Mr. Arcon] wasn’t issuing the guarantee letter; Jai was.

93    Mr. Patel also maintained his view that Ms. Mansfield was an “equal” of Mr. Arcon. The following exchange took place in cross-examination during which Mr. Patel expressed this view:

But what were you negotiating with Ms Mansfield about the guarantee letter?---Side letter; the guarantee letter was what I was negotiating with Mansfield - - -

Yes, in what respect?--- - - - because she was an equal - - -

In what respect?---Allow me to complete. She was a director - - -

No, no - - -?---Can I - - -

- - - I’m not - - -?---Can I answer your question?

No, you can’t. I want – I want - - -?---I can’t? Okay.

- - - you to tell me what you were negotiating with her?---I’m just trying to explain that.

Well, you’re not; you’re talking about something else?---Please allow me to reply.

Well, if it’s responsive to my question I will?---Exactly. I was negotiating with Ms Mansfield the terms of the side letter. Ms Mansfield was an equal stakeholder in the business. The 270 was agreed; as a non-executive director she could have always changed that. I had to make sure that stayed consistent. I had to make sure that all the three or four critical elements that I wanted were in the letter. I had to make it all go through. To give you an example: the price at that point was 380, and the income guarantee was 2700. Now - - -

So can I just clarify something you’ve just said: your negotiation with Ms Mansfield about the guarantee letter was to make sure that it stayed consistent?---Correct.

Consistent with that?---Consistent with all the discussions I’ve had prior - - -

With?--- - - - with Express, two hundred - - -

Being who?--- ..... Reece Arcon, Lloyd Roberts, two thousand seven ... dollars per week. I wanted to make sure it stays, because she is a non-executive director negotiating with me - - -

Sure. Okay. So that leaves you negotiating with Mansfield, you say, about territory and what businesses?---And finalising the – and confirming, if not finalising, the 2700 a week.

2700 per week?---Correct.

Yes; which was as simple as timesing – multiplying 270 by the amount of RMFs who were buying?---Confirming – confirming 270 times 10 with her.

Yes?---Because she’s a non-executive director; she could have changed it. She could have said, “No, that was a price of 380; now you’ve done a lower price with Mr. Arcon; it’s no longer 270”; quite possible.

94    In the foregoing passage, Mr. Patel claimed that he “negotiated” the issue of guaranteed income with Ms. Mansfield by repeating to her what had already been agreed would be paid ($2,700 per week). He said he needed to repeat himself, lest Ms. Mansfield change the deal at the last minute. With respect, I find that very difficult to accept. Rather, the passage set out above is indicative of the often forced and argumentative nature of Mr. Patel’s evidence.

95    On balance, the answers given in cross-examination by both witnesses did not take things very far. However, Ms. Mansfield was, in my view of her, more restrained when cross-examined. She said that she ran all of Mr. Patel’s changes to the draft RMF agreements past Mr. Arcon and denied ever negotiating with Mr. Patel herself. She said she had never been a director of Express Australia. The change to her title in her emails to that of “non-executive director” had been made by Scutts Senior. She did not know why the change had been made. She did what she was asked to do. I accept this evidence. It accords with the contemporaneous records.

96    Ms. Mansfield otherwise had no specific recollection of having one-on-one conversations with Mr. Patel (save in one instance). In her cross-examination, Ms. Mansfield explained why she did not herself make decisions with respect to prospective franchisees, but would always seek instructions from the applicable sales manager, such as Mr. Arcon. It was because they, but not her, were rewarded by the payment of commission. She did not want to be responsible for any loss of their commission. That explanation should be accepted. It accords with common sense.

97    As earlier mentioned, Mr. Patel relied upon a series of emails sent between him and Ms. Mansfield to support his case that he was negotiating with her on the basis that he thought she was a director of Express Australia. Again, I do not think that these emails support Mr. Patel’s contention. They are more consistent with Ms. Mansfield’s recollection. There were about nine emails tendered in evidence. Five of these were sent by Ms. Mansfield for the purpose of attaching documents for Mr. Patel to consider. In one, Ms. Mansfield informed Mr. Patel that she was booking flights for him. She wrote:

Hi [Mr. Patel]

I will update the agreements and resend. I believe I am also booking your flights for tomorrow. Leaving Melbourne around 11, and return around 5. I will get back to you with the itinerary soon.

98    In another email, Ms. Mansfield wrote that she was attaching “updated agreements” and that Mr. Arcon was very happy for Mr. Patel to call him. In another email, Ms. Mansfield confirmed that Mr. Arcon was very happy to fly Mr. Patel up to Brisbane and that he had confirmed the price. This was in response to an email sent by Mr. Patel asking Ms. Mansfield to adjust the price for the RMF draft agreements “as discussed with [Mr. Arcon]”. Two other emails concern Ms. Mansfield’s attempts to move franchisees into Mr. Patel’s territories. Here is an example of one of these:

The State Master details are all available in the Disclosure documents. [Mr. Arcon] is happy for you to call him regarding them.

As there are 10 regionals to look into, I will get back to you on the franchisees. Keeping in mind, you will receive all the mapping and spreadsheet documentation once you have commenced with us.

99    In contrast, in text messages and emails sent between Messrs.  Patel and Arcon around January 2016 there is a record of real direct negotiation between these two individuals. Some of the texts I have already reproduced. Thus, in an email sent by Mr. Patel to Mr. Arcon on 27 January 2016, Mr. Patel wrote:

Hi [Mr. Arcon],

Updated documents provided by [Ms. Mansfield] look good.

[Ms. Mansfield] is working towards determining the regions – a total of 10 regions. In the interim could we please determine

1.    Price per region per region (for a division) – understand that the stated price is $39,950 + GST. In my previous conversations it was indicated that as I was looking at purchasing 5 regions the discount would be 10%. As I am purchasing 10 divisions what would the discount be? Appreciate if you could also consider that I have already incurred $16k towards legal fees.

2.    Kick of plan - activity for the first 100 days

3.    Support towards opening Express Sales office in my region

Looking forward to your response.

(Errors in original.)

100    Mr. Arcon replied:

Hi [Mr. Patel],

I’m glad we are close to finalising things :)