Remote Data Systems Pty Ltd v Hoover
[2000] QCA 116
To print this judgment please return to the case and click on the PDF icon
next to the
case name. For court use, a full PDF copy is required or preferred.
Exit Distraction Free Reading Mode
Please Note: You are about to print a copy of the onscreen
version of
this judgment. For court use, a full PDF copy of the judgment is required or preferred. Please
return to
the case for PDF printing options.
- Unreported Judgment
- Appeal Determined (QCA)
- Remote Data Systems Pty Ltd v Hoover[2000] QCA 116
- Add to List
Remote Data Systems Pty Ltd v Hoover[2000] QCA 116
Remote Data Systems Pty Ltd v Hoover[2000] QCA 116
SUPREME COURT OF QUEENSLAND
CITATION: | Remote Data Systems P/L & Ors v Hoover & Ors [2000] QCA 116 |
PARTIES: | REMOTE DATA SYSTEMS PTY LTD (first respondent/first appellant) MARIE THERESE MAHER (second respondent/second appellant) JOHN FARNAN (fourth respondent/third appellant) v HANS HOOVER (first applicant/first respondent) DAVID BETRAND MARSHALL WHATELEY and GAIL ELIZABETH WHATELEY (second applicants/second respondents) VICTORIA STEVENSON (third applicant/third respondent) PAUL FANNING (fourth applicant/fourth respondent) HANROST PTY LTD (fifth applicant/fifth respondent) REMOTE DATA SYSTEMS BRISBANE PTY LTD (sixth applicant/sixth respondent) |
FILE NO/S: | Appeal No 5161 of 1999 DC No 39 of 1998 |
DIVISION: | Court of Appeal |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | District Court at Southport |
DELIVERED ON: | 7 April 2000 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 9 March 2000 |
JUDGES: | Thomas JA, Williams and Wilson JJ Judgment of the Court |
ORDER: | Leave to appeal with respect to the judgments in favour of the respondents D B M and G E Whateley, V Stevenson and Remote Data Sytems Brisbane Pty Ltd granted; Appeals dismissed with costs to be assessed |
CATCHWORDS: | APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - IN GENERAL AND RIGHT OF APPEAL - NATURE OF RIGHT - SUBSTANTIVE RIGHT OR MATTER OF PROCEDURE - where 5 separate claims proceeded together and all successful at trial, but “judgment” embodied in one document and one notice of appeal - whether, in respect of those judgments that were less than the jurisdictional limit, appeals are as of right or whether leave is neccessary - although sum of judgments in total exceeded requisite limit, each judgment must be separately identified - not appropriate to add together component judgments for the purposes of s 118(2) of the District Court Act 1967 (Qld) APPEAL AND NEW TRIAL – APPEAL - GENERAL PRINCIPLES – INTERFERENCE WITH DISCRETION OF COURT BELOW – PARTICULAR CASES - OTHER MATTERS - appellants made representations as to viability of franchise arrangements concerning sale of computer software designed to provide backup storage facilities for computer data - where appellants had no complaint about findings of fact of trial judge – whether insufficient evidence given to fact that all applicants knew success of business dependent on applicants’ sales ability - whether total failure of consideration because each franchise depended on a business which was worthless - evidence amply justified trial judge’s finding that there existed misrepresentations of fact as to the saleability and foundation of the business TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - CONSUMER PROTECTION – MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT - CHARACTER AND ATTRIBUTES OF CONDUCT - KNOWLEDGE OR INTENTION - whether finding of trial judge that second appellant was knowingly concerned in misrepresentation was against weight of evidence – whether finding of trial judge that third appellant had sufficient knowledge of falsity of representations so as to establish his personal liability was against weight of evidence Trade Practices Act 1974 (Cth), s 52, s 75B, s 6 District Court Act 1967 (Qld), s 118(2) Judiciary Act 1903 (Cth), s 35(1)(a)(2) Uittenbroek v Briggs (1906) 103 CLR 175, followed Miller v Roy (1975) 132 CLR 623, approved Yorke v Lucas (1985) 158 CLR 661, approved |
COUNSEL: | Mr P J Goodwin for the appellants Mr A J Heyworth-Smith, with him Mr L Stephens, for the respondents |
SOLICITORS: | Millican & Associates for the appellants Ross Forgione & Co for the respondents |
- THE COURT: This is an appeal by three unsuccessful defendants against whom damages were awarded in the District Court in an action based upon s 52 of the Trade Practices Act 1974. Each of the five successful plaintiffs claimed damages and the return of money paid by them as franchise fees to the defendants in consequence of a marketing scheme run by the defendants. The matter was originally commenced in the Federal Court before its transfer to the District Court. Judgments were given for damages in favour of the respective plaintiffs for the following sums:
| “(i) | H Hoover | - | $53,421.30 |
| (ii) | DBM and GE Whateley | - | $30,830.54 |
| (iii) | V Stevenson | - | $28,815.45 |
| (iv) | P Fanning | - | $53,129.02 |
| (v) | Remote Data Systems Brisbane Pty Ltd | $ 5,573.59” |
- Other orders were made in the nature of adjustments and there was an order in favour of the above successful plaintiffs for costs of the action. The successful plaintiffs are now respondents to the appeal.
- Counsel for the respondents raised as a preliminary point the question whether the appeal was competent insofar as it seeks to set aside the judgments in favour of the Whateleys, Ms Stevenson and Remote Data Systems Brisbane Pty Ltd, as the amount of each of those judgments was less than the Magistrates Court jurisdictional limit of $50,000. He acknowledged that the appellants had appeals as of right against Hoover and Fanning and that those appeals would no doubt proceed. Counsel did not oppose leave being granted in the event that the court considered that leave to appeal was necessary in respect of the Whateleys, Ms Stevenson and Remote Data Systems Brisbane Pty Ltd. It is however necessary to determine as a preliminary matter whether the appeals are as of right or whether leave is necessary.
- There was only one trial and there is only one Notice of Appeal. However, strictly speaking there were five separate claims that proceeded at the one time and that character remains until the proceedings are terminated.
- A right of appeal is conferred by s 118(2) of the District Court Act 1967. That section provides:
“118(2)A party who is dissatisfied with a final judgment of a District Court in its original jurisdiction may appeal to the Court of Appeal if the judgment –
- is given
- for an amount equal to or more than the Magistrates Courts jurisdictional limit; or
- in relation to a matter at issue with a value equal to or more than the Magistrates Courts jurisdictional limit; or
- involves directly or indirectly any claim, demand or question in relation to any property or right with a value equal to or more than the Magistrates Courts jurisdictional limit.”
- Here the dissatisfied parties are the defendants/appellants. Although the “judgment” is embodied in a single document, there are in reality five separate judgments in favour of the individual plaintiffs. Although the total of the judgments is over $170,000, each judgment needs to be separately identified. The ultimate record of the court is the determination as between the respective parties. When s 118(2) refers to “a party who is dissatisfied with a final judgment” it is necessary to look individually at each judgment which is challenged. It is not appropriate to add together the amounts of these component judgments for the purposes of the section. In a decision under s 35(1)(a)(2) of the Judiciary Act 1903, involving language comparable to that of s 118(2)(b) of the District Court Act, the High Court held that it is not permissible to add together two distinct amounts relative to independent claims by separate plaintiffs even though those claims were properly combined in the one action resulting in the entry of one judgment (Uittenbroek v Briggs (1906) 103 CLR 175).
- Such an approach may seem strange to a defendant in a case such as this where the total impact of the judgments exceeds the amount required by s 118(2) but some of those judgments individually do not. However, this is a consequence of the right to appeal being defined by reference to a sum of money. The problems necessarily associated with such a test were ventilated by the High Court in its decision in Miller v Roy (1975) 132 CLR 623 at 630, 633, 635, 639 and 640. Of course the effect on an appellant defendant of multiple small judgments in the one proceeding may itself be a factor that would assist a court to decide to grant leave, but that is only one of many factors that will need to be considered.
- In the present case the appellant has an appeal as of right against Hoover and Fanning. Similar issues are involved in all five matters. The plaintiff respondents were and are represented by the one counsel. It would be unjust in this case to refuse leave to the appellants to challenge the judgments against all the plaintiff respondents.
- Leave to appeal should therefore be granted in respect of the judgments in favour of the Whateleys, Ms Stevenson and Remote Data Systems Brisbane Pty Ltd.
- All relevant facts are fully set out in the careful reasons for judgment of Brabazon QC DCJ. Counsel for the appellants expressly stated that there was “no complaint about the findings of fact that his Honour made at trial”. Submissions before this court concentrated on the legal effect of and consequences flowing from the findings of fact made.
- It is not necessary to repeat here all the findings made by the learned trial judge, including findings as to the background facts to the transactions in question. Only such of the facts as are necessary to make intelligible the submissions addressed to this court will be recorded.
- Brian Maher was named as a defendant but the trial against him was adjourned as he was then an undischarged bankrupt. He gave evidence as part of the case of the other defendants. His evidence was that he became aware of a computer software program which was capable of being used to provide backup storage facilities for computer data. Apparently in America a procedure had been devised using that software which enabled computer users to store data in a remote secure data system base. The material before the trial judge did not indicate the extent to which that system was used in America but Brian Maher gave evidence indicating that he had seen material indicating that there was an “established business” in that country. He ascertained that a person in Melbourne had Australian rights to the software in question. Remote Data Systems Pty Ltd, the first appellant, was incorporated for the purpose of acquiring those rights and then making commercial use of the software. Mrs M T Maher (the wife of Brian Maher and the second appellant) was the sole director and shareholder of that company and its principal (if not sole) asset was the subject software which was duly acquired using money provided by Mrs Maher.
- Remote Data Systems Pty Ltd set up an office at Short Street, Southport, and there installed a computer server loaded with the software in question. That would have enabled other computer users to store their data in that system as a backup.
- At all material times M T Maher remained the sole director and shareholder of Remote Data Systems Pty Ltd. Her actual participation in relevant events will be detailed later. B Maher was employed by the company though, as the learned trial judge found, his “position was not given a particular description”. There was no challenge to the finding that he “could be described as the manager”. Certainly he was the “driving force behind the events” giving rise to this litigation. It is convenient to note here that the learned trial judge also made the following finding with respect to B Maher: “Whilst Mr Maher is obviously a man of both ability and imagination, he has his own poor reputation to contend with. He has paid a debt to society, but it is necessary to observe, that his reputation had also to be taken into account, in judging the reasonableness of predictions about a business associated with him.” That was a reference to Maher’s involvement in the “Bottom of the Harbour” tax avoidance schemes (he served a jail sentence after being convicted of offences relating thereto) and an earlier bankruptcy in the mid 1980s. As at the time of trial he was again an undischarged bankrupt.
- There were only two other employees of the company. A woman named Christine who appears to have been the receptionist and computer operator, and the third appellant, Farnan, who was employed as a salesman. As the learned trial judge found Farnan “had a strong background in computers”.
- In broad terms Remote Data Systems Pty Ltd sought to generate profit by having computer users store their data in the backup system located in the Short Street office. Because that was remote from each of the computer users in question that was said to provide a safeguard against data being lost because of, for example, some accident with the computer at its home location. To quote again from the reasons for judgment: “Mr Maher decided that the best way to market the concept was to set up a series of franchises, rather than employing a number of salesmen. The franchisees would attempt to bring in customers, and would be paid part of the fee charged for the backup service. Remote Data Systems will install the equipment to make the system work.” Against that background the learned trial judge found that “Mr Maher and Mr Farnan collaborated, with legal assistance, in producing the franchise agreement. In substance, the agreement provided that a potential franchisee would pay a premium in return for the right to act as a salesperson to find customers for the backup system. Any customer would agree to pay a fee, and the franchisees would keep an agreed proportion of the fees that were paid.”
- Each of the Franchise Agreements signed by the relevant respondents was an exhibit. It is not necessary to refer to those Agreements in detail. Upon payment of the Franchise Fee (which was generally set as $40,000) the franchisee received a non-exclusive franchise to market the service in a defined territory for a term of 3 years. The obligation of the franchisor was to provide what was called “The Service”, defined in the agreement as follows:
“The Service shall be the providing by the Franchisor of the Computer Hardware, Software and Secure Premises (at a Remote Location from the premises of the client) to enable the Franchisee to offer any of the facilities of:
- specialised services in the securing of computer files;
- The providing of associated hardware if required;
- The installation of the Cybersecure System at client premises.”
- There was also an obligation on the franchisor to endeavour to provide “Client Leads to the Franchisee”. The Agreement also provided:
“The Franchisee agrees to comply with the Manual as issued and amended from time to time, and agrees that the terms of the Manual shall be read as terms of this Agreement. …”
- The Manual contained material for the Franchisees to use when seeking to sign up clients, and it also contained a copy of the Client Agreement. It is evident from that document that the Franchisor was representing that it was providing to clients, amongst other things, “automatic, secure offsite storage of your most valuable asset”. In another place it was suggested that: “Using RBackup, your computer will automatically prepare a backup and transmit it off-site to a remote data vault. The transmission is secure, using an encryption technique so sensitive that it would take 120 high speed work-stations and 2 super computers running for 64 days just to break the top layer.”
- It was against that background that Remote Data Systems Pty Ltd advertised for people to take up franchises.
- The first franchise granted was for an area which covered the Gold Coast and the franchisee was a man named Whitchurch. The relevant agreement was signed on 23 May 1996. Whitchurch was not a plaintiff, and his franchise is only relevant because it was used to demonstrate to the plaintiff franchisees the viability of the scheme. However there are some important matters which should be noted in relation to the Whitchurch franchise.
- The franchise agreement with Whitchurch was negotiated by B Maher; Farnan had nothing to do with that. Maher said in evidence that the deal was “no different” from the others, except for the fact that the consideration (no amount appears to have been stated in the evidence) was paid in “trade dollars”. Subsequently Maher and Farnan used the “success” of the Whitchurch franchise to demonstrate to those who responded to the advertisements the viability of the franchises. On some occasions an arrangement was made for the prospective franchisee to speak to Whitchurch. Hoover did so and was told that Whitchurch had some 31 clients but, as the learned trial judge found, some of them were “clients to whom he had given freebees, to try it out.”. Further with respect to the Whitchurch franchise the learned trial judge made the following finding:
“The truth was, that Mr Whitchurch obtained nothing of value for the remote data services. He received nothing from any of his “customers”. They were either businesses who were having a free trial of the system, or customers who were prepared to pay “trade dollars”. Whatever the merits of trade dollars to those who are familiar with them, and prepared to deal in them, there was no mention of them to the applicants, or in the franchise agreements. Those agreements, not surprisingly, were expressed in Australian currency. The arrangements that Mr Whitchurch made, in truth, did not demonstrate at all that there was an established business on the Gold Coast. Only two or three customers ever put their data on the Short Street computer.”
- Maher also said in evidence that Whitchurch was using his own computer, rather than the server at Short Street, to store clients’ data. That further indicated that Remote Data Systems Pty Ltd had no established business.
- The fact is no hard cash was either paid by Whitchurch for the franchise or received by him from clients. All of that justifies the conclusion of the learned trial judge that the Whitchurch experience did not justify the representations made by the appellants to the other prospective franchisees.
- Between May and August 1996 a number of advertisements were placed in newspapers, including the Courier Mail, seeking responses from persons interested in taking out a franchise in the scheme. The advertisement quoted by the learned trial judge in his reasons as being typical was in the following terms:
“ Established Cash Flow
Opportunity exists for 3-4 persons to join the principal as associates in this unique business - the need for which is fully established.
Persons with middle management experience considered suitable.
Capital required $40,000 covers copyright and licence requirements. First year earnings in excess $127,500. Security clearance will be required.
For confidential appointment
John Farnan
(07) 3229 0955, 018 874 099.”
- The Whateleys, Hoover, Stevenson and Fanning all responded to such an advertisement and had discussions with B Maher and Farnan about the franchise. In the course of those discussions further representations about the business were made. In his reasons for judgment the learned trial judge detailed the relevant representations as follows:
“(a)That the franchise offered was an established business;
(b)That the franchise offered was a cash flow business;
(c)That the business was unique;
(d)That the first year earnings would exceed $127,500;
(e)That 35-40 clients had been engaged by Remote Data Systems franchisee at the Gold Coast;
(f)To Mr Hoover and his company, that the North Coast franchisee had put on a couple of reps and had 35-40 customers;
(g)That Mr and Mrs Whateley and Mrs Stevenson might have their cash back by reason of certain cash back arrangements;
(h)That it would be easy to sell to 3% of the businesses in their areas; and
(i)To Mr Fanning, that the Gold Coast franchisee “had put on 20 customers in the last two weeks”.”
- It is sufficient to record that after such discussions the Whateleys signed franchise agreements in July and August 1996. They paid an initial $20,000 and agreed to pay a balance of $20,000. Though they worked hard they obtained no clients and ceased actively looking for clients in about November 1996. Mrs Stevenson signed her agreement on 12 August 1996. She paid $22,000 initially and agreed to pay the balance over time. She got no clients and ceased actively seeking clients in about September 1996. Fanning, who was found by the learned trial judge to have had previously “a lot of experience in marketing”, signed his agreement on 16 August 1996 and paid $40,000 for it. As the learned trial judge found, Fanning put a great deal of effort into endeavouring to make his business a success, but found he could attract no customers. He ceased actively canvassing for clients in about mid November 1996. Hoover signed his franchise agreement on 1 October 1996 and paid $40,000 for it. The learned trial judge found that he “worked solidly to launch his franchise for about two months”. He had had previous experience in sales and small business. After attracting no customers he ceased canvassing in about November 1996.
- Against that background the learned trial judge was clearly justified in coming to the conclusion that the whole “project was a complete failure”. The plaintiffs between them “did not manage to persuade a single business to become a customer”. But of course that did not of itself entitle them to succeed.
- The learned trial judge considered each of the representations in the light of the whole of the evidence. He was satisfied that three did not constitute a misrepresentation. He referred to the representation that “the remote data system was unique … there was nothing like it in Queensland”. His Honour concluded that there was “nothing to demonstrate that it was false … it was probably true, at the time it was made, in late 1996.” He then noted that all “the plaintiffs knew that they would be starting from scratch in their franchise areas and would have to build up a business.” They all realised that it was only after clients had been found that it would be “a cash flow business”. The learned trial judge therefore concluded that none of the plaintiffs was misled by the representation that the business was a cash flow one. He also concluded that the cash back arrangements with the Whateleys and Mrs Stevenson were “genuine”.
- The learned trial judge noted then that the other representations were “closely linked”. It was at this point in his judgment that he dealt with the Whitchurch franchise in the words quoted above. He concluded that the representations made by B Maher and Farnan about the Gold Coast franchisee were “inaccurate and misleading”. Such a finding was clearly supported by strong evidence.
- B Maher attempted to justify the “established business” representation by saying that it referred to the American experience. Some of the plaintiffs agreed that there was a reference to the American experience but that was not to the point. The learned trial judge, as was clearly open to him on the evidence, held that the representation amounted to one that “there was an established business in Queensland”. That was not so; such a representation could not be supported by the Whitchurch experience. He held that the “statements about the Gold Coast franchise were about an existing fact. They were misleading …”; that finding cannot be challenged in the light of the evidence. Whilst he conceded that some of the predictions were concerned with the future he correctly concluded that: “Those predictions depended on what must have been an assertion of an existing fact – that the data protection system was marketable in this country, at least to 3% of businesses, particularly because it had been proved to be so by the experience of the Gold Coast franchisee. That was not so – in truth, the system was unmarketable, and so the offer of a franchise was worthless.”
- That led to his Honour concluding that a misrepresentation “about a fundamental basis of a franchise based on selling the data protection system was made”. He was also satisfied, and there was no real challenge to this on appeal, that all of the plaintiffs relied on the statements held to be misrepresentations in deciding to enter into the franchise agreements.
- The real attack on the reasoning of the learned trial judge was that he did not give sufficient weight to the fact that all of the plaintiffs knew that ultimately success depended upon their ability as sales persons to obtain clients. However, that is not something which was overlooked by the learned trial judge; he said:
“It is true that each franchisee had to create a pool of customers for a new business venture. They all knew that, and accepted the responsibility for doing so. They accepted the undoubted difficulties and risks that must surround any new business project. However, they did notm accept what happened here – that the remote data system was unmarketable. The marketability of the business was the foundation of the franchise agreements.”
- As already noted the learned trial judge concluded that the project which was the foundation of the franchise agreements was a “complete failure”. He accepted the evidence of Fanning, the most experienced salesman amongst the plaintiffs, that there were several factors which resulted in his inability to find a single customer for the system. The learned trial judge made the following findings based on his evidence as to why the system was not marketable:
“(a)Either Mr Maher or Mr Farnan had said that most businesses spent 20 minutes a day backing up their computer systems, but that turned out not to be the case. Many businesses took only a few minutes, so they were not concerned about the time spent;
- The system was designed to retrieve the data from most businesses late at night, and that was not attractive to many potential customers, for practical reasons;
- No secure “vault” had been set up. The Short Street office premises were not in that category;
- There were difficulties with the use of the program in the computer software supplied to him for marketing purposes. The fax program did not work properly, and the list of potential business customers was not very useful – for example, once a fax was sent to a potential customer, then that customer’s name disappeared from the list and became part of a fax record;
- The cost of the phone call to transmit the data from the Brisbane area to the Gold Coast was too high;
- Mr Maher’s own reputation did not help. Mr Maher had been involved in the “Bottom of the Harbour” tax schemes of past years. His activities led to a conviction for conspiracy to defraud the Commonwealth, for which he spent 21 months in prison. His proceedings attracted a good deal of publicity.”
- Of those matters the fact that there was no “secure vault” was undoubtedly significant. The facilities at Short Street could not objectively be classed as “secure off site storage” or a “remote data vault” as represented to prospective clients. This again demonstrated that the business which was the foundation of the franchises was without substance.
- Counsel for the appellants accepted that the learned trial judge had correctly identified the relevant representations but he submitted “that a proper and logical conclusion from the facts found by his Honour must be that each of the present respondents was not misled or deceived nor were they likely to be misled or deceived by any of the representations found by his Honour to have been made by or on behalf of Remote Data.” That was primarily because, as noted above, his contention was that each of the franchisees knew that a new business was being purchased which had to be established individually by each franchisee from scratch.
- That submission must be rejected. The evidence amply justified findings that there were misrepresentations of existing fact with respect to the Gold Coast franchise as to whether the system was saleable, and as to the foundation of the business.
- Counsel for the appellants also attacked the conclusion that there had been a total failure of consideration because each of the franchises depended upon a business which was worthless. Whilst one can say in a sense that each of the franchisees “obtained the business consisting of the right to sell” the system, that does not mean to say that each received something of value. I am not satisfied that the learned trial judge erred in concluding that there was a total failure of consideration.
- It follows that the appeal by Remote Data Systems Pty Ltd must be dismissed.
- I now turn to the appeal by M T Maher. The case against her at trial was based on s 75B of the Trade Practices Act 1974 which relevantly provides that a reference to a person involved in a contravention of s 52 shall be read as a reference to a person who “has aided, abetted, counselled or procured the contravention” or who “has been in any way, directly or indirectly, knowingly concerned in or party to the contravention.”. That provision was considered by the High Court in Yorke v Lucas (1985) 158 CLR 661. It was conceded by counsel for the appellant that the learned trial judge accurately summarised the position for present purposes when he said that the decision in Yorke v Lucas required proof of the following:
“(a)For s 75B(1)(a) to apply to a person, it must be shown that he or she intentionally aided, abetted, counselled or procured a contravention, and to have the necessary intent he or she must have knowledge of the essential matters which make up the contravention, whether or not he or she knows that those matters amount to a contravention.
- Before a person could be said to have been a party to a contravention of s 75B(1)(c) he or she must be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.
In para (c) the word “knowingly” qualifies only the words “concerned in” and not also the words “party to”.”
- The learned trial judge made the following specific findings with respect to the involvement of M T Maher:
“She helped with the operations of the business (“ … in the arrangements, deliveries, and different things like that”). She did so at the Short Street office. She engaged Mr Farnan. Mr Maher kept her informed about what was happening, and about those who were being interviewed as potential franchisees. She requested that the franchisees be competent, and be offered proper training and help. She saw the advertisements going into the Courier Mail. The content of the advertisements accorded with her understanding of what Mr Maher and Mr Farnan had told her. She knew that premiums had to be paid for the cash back arrangements. Consistently with the advertisement, she knew about discussions, about the likely fee structure, and the potential earnings of a franchise. She knew that $127,500 was based on projected sales, and that sales figures were worked out, before the potential franchisees were interviewed. She knew that Mr Maher and Mr Farnan would discuss such figures with the franchisees. She knew the potential franchisees were to be told that the business was “one of a kind”, and that it was a cash flow business. She knew that it was intended to say that the business was established in the USA. She knew that Mr Whitchurch was a franchisee on the Gold Coast. She denied any precise knowledge of the number of clients that Mr Whitchurch had and what Mr Maher or Mr Farnan said to franchisees about that matter. … She knew that discussions about the projected earnings depended on the abilities of the franchisees, and also on a certain rate of success, with their customers - that was 3%, which was mentioned to them.”
- It was consequent upon making those findings that the learned trial judge concluded that the “knowledge which Mrs Maher had demonstrates that she was knowingly concerned in the misrepresentations. She is personally liable for them.”
- As the only director and shareholder of Remote Data Systems Pty Ltd she must have been aware that there was no existing business providing income to that company from the storage of computer data. She must have known, for example, that the company had not received any cash income from the Whitchurch franchise; nothing by way of a capital sum on the signing of the franchise and nothing by way of income from clients using the system.
- Given the findings of the learned trial judge it is clear that M T Maher knew that there was no existing business in Queensland and there was no evidence to substantiate the representation that the remote data system was marketable.
- It was the submission of counsel for the appellants that M T Maher “lacked the necessary intent” because she was not aware of the essential circumstance that there was no reasonable basis upon which the company Remote Data Systems Pty Ltd made its representations as to the extent of the alleged successful operation of the business by the Gold Coast franchisee and because she was not aware that the concept was unsaleable to at least 3% of businesses within the franchise area.
- M T Maher knew of the advertisements, she signed each of the franchise agreements in question, and must have had knowledge of the contents of the documents which were incorporated into those financial agreements. Being the sole director and capital provider of Remote Data Systems Pty Ltd she knew that there was no income from any existing business (other than from the sale of franchises) and she must have known that there was no basis for the representations which were in fact made to each of the plaintiff franchisees.
- There was ample evidence supporting the conclusion of the learned trial judge and it has not been established that the findings were against the weight of the evidence. It is conceded that the proper test was applied, and the findings made were clearly open on the evidence. She had knowledge of the falsity of the representations and was so involved in their making as to be caught by s 75B.
- The appeal by M T Maher should be dismissed.
- Similar issues were raised by the appeal with respect to Farnan. The learned trial judge appears to have held Farnan to be personally liable because of the operation of s 6 of the Trade Practices Act; relevantly he said:
“By s 6 of the Trade Practices Act its operation is extended to individuals as well as to corporations. Mr Farnan was a primary source of the misrepresentations. He is liable to the same order for damages that is made against Remote Data Services … more than Mrs Maher, he was knowingly involved in the contraventions.”
- Probably that finding was based on the use of “telephonic services” by Farnan in relation to the transaction. Counsel for the respondents on appeal did not abandon reliance on s 6, but contended that in any event the findings made by the learned trial judge implicated Farnan by operation of s 75B. The finding he was “knowingly involved in the contraventions” equates with a finding he was “knowingly concerned in … the contravention” for purposes of s 75B. Counsel for the appellants submitted that (as with Mrs Maher) the “final element of knowledge” had not been established.
- When the evidence, and the findings of fact made by the learned trial judge are carefully analysed, it appears that Farnan was personally involved in the making at some time or other of each and every of the misrepresentations found to have been made. He was the initial contact for each of the prospective franchisees, he was involved in the preparation of the documentation, he was responsible for providing such training as was given to new franchisees, he was involved in the formulation of the advertisements, he was directly involved in the calculation of the figure of $127,500 as the first year’s earnings, he made express representations that the Gold Coast franchisee had 20 to 35 clients, and it was he who ultimately convinced each of the plaintiff franchisees to take up a franchise. He was involved in the affairs of Remote Data Systems Pty Ltd from the start and was clearly aware that there was no existing business in Queensland which could provide a foundation for the franchises granted to the plaintiffs.
- Again, the evidence is overwhelming; Farnan had sufficient knowledge of the falsity of representations and was so involved in their making as to be caught by s 75B.
- His appeal should also be dismissed.
- Generally, having considered all of the submissions made on behalf of the appellants, we can find no error in the detailed and careful reasons for judgment of Brabazon QC DCJ.
- The orders of the court should therefore be:
- Grant the appellants leave to appeal with respect to the judgments in favour of the respondents D B M and G E Whateley, V Stevenson and Remote Data Systems Brisbane Pty Ltd;
- Appeals dismissed with costs to be assessed.