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CITE

Unreported Judgment

Realtail Pty Ltd v Australian National Real Estate Private Sales Pty Ltd[2001] QDC 269McGill DCJ
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Realtail Pty Ltd v Australian National Real Estate Private Sales Pty Ltd[2001] QDC 269

DISTRICT COURT OF QUEENSLAND

CITATION:	Realtail Pty Ltd v. Australian National Real Estate Private Sales Pty Ltd [2001] QDC 269
PARTIES:	REALTAIL PTY LTD (Plaintiff) v. AUSTRALIAN NATIONAL REAL ESTATE PRIVATE SALES PTY LTD (First Defendant) And LANDQUEST PTY LTD (Second Defendant) And ANTHONY WILES & DOROTHY LOWREY (Third Defendants)
FILE NO/S:	D4633 of 1999
DIVISION:
PROCEEDING:	Trial
ORIGINATING COURT:	District Court Brisbane
DELIVERED ON:	31 October 2001
DELIVERED AT:	Brisbane
HEARING DATE:	23-31 October 2000
JUDGE:	McGill D.C.J.
ORDER:	Judgment that the third defendants pay the plaintiff $130,286.27, with costs
CATCHWORDS:	TRADE PRACTICES – Misleading and Deceptive Conduct – representations as to future matters – whether reasonable basis for making them – whether defendants persons knowingly involved in contravention – Trade Practices Act 1974 (Commonwealth) s. 52, s. 75B
COUNSEL:	A.P. Collins for the plaintiff The third defendants appeared on their own behalf
SOLICITORS:	Robert Bax and Associates for the plaintiff The third defendants appeared on their own behalf.

[1]
This is an action for damages under the Trade Practices Act 1974 (“the Act”). The action was originally brought against two companies, the first and second defendants, and two individuals who were the third defendants. Prior to the time the action came to trial, the first and second defendants had been deregistered^[1] so the action proceeded only against the third defendants (“the defendants”). They are sought to be made liable under s. 75B of the Act, on the basis that they were persons knowingly involved in the contravention of the Act by one or other of those companies. The defendants were directors of the first and second defendants: p. 533.

[2]
A contract described as a “sub-franchise agreement” was entered into on 18 May 1994 (p.34) between the plaintiff as franchisee, the second defendant as franchisor, and the first defendant (said to have been a company with whom the franchisor had entered into a master franchise agreement dated 28 October 1993): Exhibit 5. The plaintiff agreed to act as a sub-franchisee within defined territory for the purpose of marketing a “comprehensive system for private real estate retail sales incorporating a detailed step by step home or land selling procedure …”. The agreement provided for a franchise fee of $50,000, which was paid by the plaintiff^[2]. The plaintiff seeks to recover this amount, and other damages alleged to have been caused by the plaintiff’s entry into the agreement, and operation of the business. Liability and quantum are both in issue.

[3]
The third defendants were at one time represented by solicitors, but prior to the commencement of the trial they had ceased to act and the third defendants conducted their own case during the trial, which lasted for seven days. Because the defendants’ case was not originally properly put in cross-examination of the plaintiff’s witnesses, after the defence case, the plaintiff was allowed to reopen and recall certain witnesses to respond to the defence case.

Background

[4]
Essentially the service which was to be marketed pursuant to this franchise agreement was a method of assisting people who wanted to sell real estate to do so themselves rather than with the assistance of a real estate agent. Real estate agents comprise one of the few commercial activities which have resisted successfully the pressure in recent years for price competition, and they are widely perceived as being over-remunerated for what they do: p. 100. The matter is complicated by the fact that they are paid not by reference to the effort applied, but essentially only if a sale results, and by reference to the value of the property sold^[3]. Although tying the commission to the sale price ought to give the agent an incentive to maximise the sale price, there is a common perception that agents prefer a quick sale at a lower price to a sale at a higher price which requires a lot of work, and that as a result there is a conflict between the interest of the home owner and the interest of the agent. Whether this is right or wrong, in some cases concern about this may combine with an unrealistic overestimate by the home owner of the value of the property to produce a feeling of dissatisfaction with real estate agents.

[5]
Some people react by selling their property themselves, but others are daunted by the difficulties (real or imagined) involved in that task, and feel that they would like to be able to do it themselves, but do not know how. The defendants sought to exploit this market by offering people a set of instructions^[4] on how to market their own property, together with incidental materials such as signage and a telephone answering service. For this they charged a flat fee which would be relatively modest in comparison to the fee charged by a real estate agent. Avoiding the agent’s fee was the principal thing that attracted people to the service: p. 78.

[6]
The defendants first became interested as a result of Mr. Wiles wanting to sell his house in Perth and deciding to do it himself: p. 340. While it was on the market, Ms. Lowrey, who after a lengthy career in teaching, had begun to work for a real estate agent and was canvassing for listings, happened to call on him. He was not interested in listing with her employer, but evidently they began to talk and came to discuss what they thought was the unfortunate absence of any assistance package for people in this position to help them to market their own properties. Ultimately they saw this as a business opportunity, and Ms. Lowrey left her employment, and, after a good deal of investigation, eventually they put together a service which could be sold to people. Apparently in about 1989 they began trading: p. 341. It took them a long time, of the order of three months, to find their first client, notwithstanding fairly intensive canvassing: p. 340. Once they had one client, one sale, they found that this helped to spread word of their business, partly because of the exposure associated with that client’s marketing efforts, and partly because, once the property was sold, news of the service spread by word of mouth: p. 341.

[7]
This activity also led to complaints from real estate agents, presumably that the defendants were acting as unlicensed real estate agents, and in September 1989 there was an investigation from the Consumer Affairs Department in Western Australia, which cleared them: p. 341. As the business grew, there were further complaints, and there was a further investigation in 1990. The business grew and by June 1992 they moved into commercial premises, but were still subject to some harassment from real estate agents, which led to a further inquiry by the relevant government department in 1992: p. 342. By this time they had about 70 clients (p. 343) and ultimately the investigation again cleared them. There was some advertising in local papers but it appears the business was operated without widespread advertising, relying principally on word of mouth: p. 101, p. 343.

[8]
After the business was cleared in December 1992, it came to the attention of a television station, and an item on the business was included in “A Current Affair” broadcast in February 1993: p. 273, p. 344: Exhibit 45. The program was broadcast nationally and produced a flood of inquiries to the business. The defendants had, by this time, taken the decision to offer franchises, initially only in Western Australia, with other people operating the business in the same way; however, after this interest from throughout Australia, they began to investigate the possibility of expanding the business nationwide.

[9]
One of the people who was attracted by the publicity (p.101) was Mr. Coles, who was called as a witness by the plaintiff. He started to work for the defendants in about April 1993 (p. 63), in effect as a marketing manager^[5]; his job was to talk to potential franchisees, to market franchises (p. 387), and to liaise with the media. Ultimately he left the business in July 1994, in somewhat difficult circumstances, and it was clear that he was no longer well disposed towards the defendants: p. 74.

Plaintiff’s involvement as a franchisee

[10]
In the latter part of 1993, a point had been reached where franchises were being offered in Queensland. Mr. Slattery, who became one of the directors of the plaintiff, was told about this by his sister-in-law and subsequently telephoned and spoke to Mr. Coles: p. 11. He said he and his partner Ms. Moore met Mr. Coles on 10 October 1993, on which occasion he was provided with a document headed “disclosure document”: Exhibit 1, p. 12. He said that Mr. Coles took him through the disclosure document in detail (p. 12, 17) and explained the system under which they were to work. They were interested, indeed very enthusiastic about the concept: p. 16, 20, 68. Apparently the franchise arrangement involved area franchises as well as local franchises, where sub-sub-franchisees would operate under the supervision of a sub-franchisee for a particular area. Shortly after the initial meeting Mr. Coles offered the Brisbane North area franchise to Mr. Slattery and he was interested: p. 20.

[11]
A deposit was paid by them prior to 1 February 1994 (Exhibit 2, p. 21), and they were informed in January that there was to be a training course held in March. The plaintiff company was acquired by Mr. Slattery and Ms. Moore, to be the vehicle to operate the franchise business: p. 22. A training course was held at the beginning of March at the office of a firm of solicitors in Brisbane, which they attended: p. 22-3, p. 441. The course was conducted by the defendants, and extended over four days. There was some conflict of evidence as to what was said by the defendants during that course, in relation to certain matters relied on as misrepresentations. I shall return to this issue.

[12]
After the training course, Mr. Slattery arranged for the plaintiff company to take a monthly tenancy of commercial premises in a shopping centre (p. 25-6) which he said Mr. Wiles saw and approved, and bought a computer and various other things necessary to operate the office as a business. The first defendant opened an office in Queen Street (p. 30) and Ms. Langeder, who had worked with the defendants in Perth (Exhibit 25), came to Brisbane on 30 March 1994 to staff it^[6]. The plaintiff started to operate the business on 5 April 1993 (p. 27) in that it then started advertising in a number of local papers, and began distributing advertising material; some of this was provided by one of the defendant companies and further brochures were later printed at the plaintiff’s expense: p. 27.

[13]
They found business very slow, because (he said) the business (operating under the name “ANREPS”) was not known in Queensland, and had no presence in the market place, and because if asked they had to admit that they had not yet sold any property in Queensland: p. 31-2. They had expected that it would be slow to start but not as slow as it was. They paid the balance of the franchise fee on 22 April 1994 (p. 297) after receiving the agreement but before signing it: p. 298. There were also two sub-franchisees who had their separate areas, but under the Brisbane North Regional office, a Mr. and Mrs. Timson covering the Petrie area, and Mr. and Mrs. Collins covering the Sandgate area: p. 30, 600. There was a formal meeting of the representatives of the various franchisees, and the Brisbane representative of the defendants’ companies (Michaela Langeder) on 29 April 1994, where various things were discussed, including the matter of advertising: Exhibit 4.

[14]
Eventually, however, some customers were signed up and some fees were paid^[7]. The first customer was obtained in May 1994^[8] and two others in June, one in July and four in August: Exhibit 12. None of these customers actually sold their homes: p. 43. In early May Mr Wiles came to see Mr. Slattery, and was told they wanted to proceed with the franchise: p. 578^[9]. Soon after, on about 18 May 1994, the franchisee agreement, Exhibit 5, was signed: p. 34. In late May there was a meeting involving the defendant, Mr. Wiles, at which he said that the plaintiff had the worst performance of any franchisee in Australia: p. 37, Exhibit 6. The meeting was also attended by Mr. McKenzie, who had the franchise for Caloundra. Both complained to Mr. Wiles about the absence of any support, in terms of advertising and advice, from head office. They were particularly pressing for advertising: p. 39, p. 41, p. 240. There was, however, no comment offered by Mr. Wiles in relation to the absence of support: p. 42, p. 624^[10]. Mr. Slattery also wrote to the defendants on 30 May 1994 (Exhibit 11, p. 51) complaining about the failure of the business to cover its costs, and the lack of support from head office. Mr. Slattery said he subsequently spoke to Mr. Coles and Mr. Wiles about the matter, and they suggested that he sell the franchise: p. 44. It was advertised for sale, but without success: p. 45, 46.

[15]
In August 1994 the plaintiff had its solicitors write to ANREPS at the Brisbane office, complaining about a number of problems with respect to the support provided by the franchisor under the agreement, and notifying the franchisor of these problems for the purposes of clause 28 of the franchise agreement: Exhibit 7, p. 48. Clause 28 of the franchise agreement, Exhibit 5, contains a dispute resolution procedure. It was not suggested that that clause has any relevance to the resolution of this action. In mid-September 1994, the plaintiff gave up its tenancy of the shop premises, although the business continued to operate (to the extent that it was still operating) from Mr. Slattery’s home: p. 51. The plaintiff subsequently received from the solicitors for the second defendant a notice of default (Exhibit 13) and, at the end of November the second defendant purported by notice to terminate the franchise agreement: Exhibit 14, p. 53.

[16]
When the plaintiff ceased to operate, all of its signage and materials to attract custom and to be provided to customers were handed over to the Brisbane South Regional franchisee free of charge: p. 56. There is no suggestion that there was then anyone available who was willing to pay for this material. However, they and indeed all other franchisees in Queensland sooner or later closed down: p. 60, p. 644. The plaintiff alleges that it suffered a substantial loss as a result of its entering into this franchise agreement, and attempting to operate the franchise business. Ultimately the plaintiff quantified the amount paid out by it, less its actual receipts, at $80,311.71^[11].

Alleged misrepresentations

[17]
The statement of claim relies on the following representations as founding the plaintiff’s claim:

“(a)
that upon the sub-franchise being entered into the first and second defendants would provide training and ongoing support to enable the plaintiff to maximise the opportunity of being an ANREPS franchisee;
(b)
that upon the sub-franchise being entered into the first and second defendants would provide advice and assistance to the plaintiff to assist in the conduct of its business;
(c)
that upon the sub-franchise being entered into the first and second defendants would provide an operations manual to the plaintiff, in which would be set out the procedures to be observed by the plaintiff in the conduct of its franchised business;
(d)
that the first and second defendant would arrange and implement group marketing and advertising for the ANREPS group of which the plaintiff would be part;
(e)
that there would be both local and national launches of the ANREPS name for the purpose of promoting the ANREPS group”.

It was alleged that these representations were made orally to Mr. Slattery by Mr. Coles on or about 10 October 1993, and by the defendants in early March 1994, and that such representations were also made in writing in the “disclosure document” given to the plaintiff. In the course of submissions the plaintiff also relied on the representation that there would be a full time senior officer at ANREPS in Brisbane, presumably as an indication of how the first and second defendants were intending to implement the intention represented in para. (a) and (b) above, and that franchise fees were going to be used to develop each individual franchise area, with a part being allocated for the development of particular franchises.

Disclosure document - changes

[18]
Mr. Slattery said that he met Mr. Coles on 10 October 1993 and was provided with a disclosure document in the form of the document Exhibit 1: p. 12, p. 14. Mr. Coles agreed that he provided a copy of this document to Mr. Slattery, and indeed everyone else that he spoke to about a franchise: p. 64. Mr. Coles did not say anything specific about the date, but I am prepared to accept the evidence of Mr. Slattery as to this, and I accept that the disclosure document in the form of Exhibit 1 was provided to Mr. Slattery by Mr. Coles at this time. Mr. Coles said it was provided to him by the defendants (p. 77) and that it had been created by them: p. 64. This was not disputed by the defendants, although they said that this document was updated prior to October 1993 and Mr. Coles ought not to have been using this version when speaking to the plaintiffs:p. 573-4.

[19]
Mr.Wiles conceded that he was responsible for drawing up the disclosure document, Exhibit 1: p. 573. Ms. Lowrey denied that she had been involved in drawing it up (p. 385) but conceded that she would have seen it at the time (p. 482) and described it as possible that she did not approve it at the time: p.386. She said that this was the form in which franchisees in Perth were given the document. Mr. Wiles maintained however that by October 1993 the disclosure document which formed Exhibit 1 was obsolete, and that references to the national marketing campaign were taken out at the end of July or August 1993: p. 574. He maintained that Mr. Coles ought not to have used this version. He was however unable to produce any copy of the disclosure document which came between the form in Exhibit 1 and the form in Exhibit 5, although being created for some time on or after 27 October 1993 (as appears from the date on the first page^[12]). He said that by July or August 1993 a reference to a national marketing campaign was inappropriate because there was no way that a small company could finance such a thing: p. 574. There was no confirmatory evidence of another version of the disclosure document coming between Exhibit 1 and Exhibit 5; no copy was produced: p. 661. I am not persuaded that such a document ever existed, and reject this evidence of Mr. Wiles. In particular, I do not accept that by July or August 1993 there had been any decision not to use the disclosure document in the form of Exhibit 1 because of the reference to national advertising.

[20]
An updated version was incorporated into Exhibit 5, the sub-franchise agreement; by clause 41 the franchisee acknowledged that prior to having executed Exhibit 5, it had received the disclosure statement annexed to the contract, and had read through it and fully understood its contents. By that clause it also represented that it had not relied on any statement, representation or warranty made by ANREPS and/or the franchisor or their employees or agents other than as was set out in the agreement.

[21]
A document in the form incorporated in Exhibit 5 would not have been provided on 10 October; I am not persuaded the document in that form existed at that time. In these circumstances it is unnecessary for me to consider whether the effect of the production of this revised form of disclosure document was that Mr. Coles’ authority to distribute the document in its earlier form was withdrawn, or that the defendants were no longer responsible for the use of the document in its earlier form. I accept that as at 10 October 1993 the current version of the disclosure document was Exhibit 1. I also accept that it was something which was to be provided to potential franchisees in advance of the contract (p. 577); its function was essentially to provide in a more understandable form relevant information about what was being proposed by the franchisor. She said at one point that she would not have expected Mr. Coles to use the disclosure document when talking to potential franchisees, but on the same page conceded that she did not find it unusual that he would do so: p. 483.

[22]
I am not persuaded Mr. Coles was told prior to his meeting with Mr. Slattery that the disclosure document in the form of Exhibit 1 was no longer to be used. It was Mr. Coles’ job to attempt to secure franchisees for the first and second defendants, and this was a document provided to him to enable him to fulfil that role. I accept that he had the authority of the first and second defendants to provide this document to people such as Mr. Slattery, and that whatever representation it contained was thereby made to Mr. Slattery, subject to any oral modification or subsequent qualification of that representation. Mr. Coles said he was aware that Mr. Wiles had made changes to the disclosure document as the various things stated in it had become harder to fulfil, for example by taking out the reference to the “national launch”: p. 75. There was no evidence which I accept that this occurred before Mr. Coles spoke to Mr. Slattery. Mr. Coles said and I accept that once he was aware of these changes, he stopped selling franchises: p.141. He said he became aware in May or June 1994: p. 142.

[23]
I also accept Mr. Slattery’s evidence that he was unaware that the disclosure document in the form which was incorporated in Exhibit 5 was different from the one which he had been given in October, and that his attention was not drawn to the changes: p. 33, p. 169, p. 298. No evidence inconsistent with that proposition was led on behalf of the defendants. I accept that Mr. Slattery, and therefore the plaintiff, were not aware, when Exhibit 5 was signed, that it contained a form of disclosure document different from Exhibit 1.

Disclosure document - terms

[24]
Exhibit 1 on p. 3 contained a heading “Advertising and Promotion” under which was the following paragraph:

“ANREPS has never aggressively advertised or promoted its service. The directors have deliberately not pursued this path, rather they have preferred to move slowly and consolidate their position step by step to ensure that Franchisees will have a very firm base and that the Company’s National Launch program will not only have to rely on National Advertising, but more importantly on its service and reputation”.

In the version in Exhibit 5 this was changed to:

“ANREPS has never aggressively advertised or promoted its services. The directors have deliberately not pursued this path, rather they have preferred to move slowly and consolidate their position step by step to ensure that Franchisees will have a very firm base and strong reputation”.

[25]
The version in Exhibit 1 does, I think, fairly express an intention at some point to have a national launch, and an intention to have some national advertising, although it does not suggest that either it is imminent; rather, it suggests that, rather than national advertising being used to establish the reputation of ANREPS, the intention was that this should be developed in some other way first. This was, however, not the only reference to advertising; on p. 5 there was a reference to an advertising levy of $75 per month per area, and on p. 7 under the summary of services provided by the franchisor, appeared “group marketing and advertising”. One of the benefits identified to ANREPS franchisees on p. 7 was: “Participation in a group marketing program”. On the other hand, the heading “Obligations of the franchisor” on p.6 does not contain any reference to advertising.

[26]
The document on p. 3 under a heading “Management Support” stated:

“Understandably high standards are demanded of both Franchisees and employees who are trained in all aspects of the operation. Training consists of a five day program plus ongoing support to help you maximise the opportunity of being an ANREPS franchisee.”

On p. 6 under the heading “Obligations of the Franchisor” appeared:

“The Franchisor will provide to you an initial training program. The Franchisor will provide advice and assistance to assist you with the conduct of your business”.

On p. 7 the summary includes “Continuing support and advice”, “Management and staff training” and “Training and supervision”. All of these statements remained in the disclosure document as it appeared in Exhibit 5.

[27]
The disclosure document also referred to an operations manual. On p.6, one of the obligations of the franchisor was expressed as “An operations manual will be licensed to you by the Franchisor and the Franchise Agreement provides that you must observe the procedures therein”. On p.5 under the heading “Obligations of Franchisee”, there was a numbered obligation:

“5. Keep the Operations Manual up to date with the replacement pages as instructed by the Franchisor and to duly and punctually comply with the standards set forth in the Operations Manual. You also agree to keep the Operations Manual and its contents confidential at all times, not to make any copies of the Operations Manual whatsoever, and not to disclose to any person the contents of the Operations Manual, unless required to do so to an employee in furtherance of that person’s normal duties within the Franchised operation”.

This remained in the document in the form which was in Exhibit 5.

[28]
There was also on p. 7, among the benefits to ANREPS’ franchisees, an “identifiable corporate image”. This was referred to in submissions on behalf of the plaintiff, but I do not think there was any misrepresentation in relation to that. The “ANREPS” trade name and logo and corporate style was made available to the plaintiff, and were identifiable to anyone familiar with it; the plaintiff’s real complaint is that it was not something which was well known to the public, but that is, I think, a different issue.

Oral representations on 10 October 1993

[29]
According to Mr. Slattery, at the meeting with Mr. Coles on 10 October 1993 he was taken through the disclosure document exhaustively (p. 12, p. 17), and the system, concerning what was provided to the customers, was explained to him. He was told that ANREPS was going to have a Queensland launch at some stage (p. 12), and that there was going to be a “National Launch Australia wide”: p.15. He was also told there was going to be advertising, although no detail was given as to the advertising which would be provided by ANREPS: p. 15. He was told that this would occur as part of a state launch. He was also told there would be ongoing marketing of the ANREPS name: p. 16. He was told that there was going to be a senior officer of ANREPS based in Brisbane, and was told at some stage, possibly in October, that it might be Mr. Coles who would be coming to Brisbane: p. 18. He said he was told there would be a training course, and that an operations manual would be provided: p. 16.

[30]
According to Mr. Coles, when he was speaking to Mr. Slattery he said that there would be a national launch, although nothing specific was said about what that would involve: p. 65. At that stage he did not know what the national launch was to involve (p. 114), and had never discussed that with the defendant: p. 75. As far as he was aware, the content of the national launch had not yet then been decided: p. 66. He said, however, that he assumed that it would involve some co-ordinated media campaign with a budget, and he was unaware of anything being then in place for that to occur: p. 114.

[31]
He also said that he told Mr. Slattery that Queensland franchisees could expect what was being done in Western Australia in the form of training and co-ordination of activities of franchisees: p. 67. There would be a central location which would provide a range of support services. He also said the franchise fees, or at least part of them, would be used for the development of each individual franchise area, and ongoing fees would be contributed into a pool to be used for the benefit of the franchise group as a whole: p.67. He said that support, in terms of teaching franchisees how to improve the returns and percentages they were obtaining from their franchise, would be made routinely available to them: p. 67. He said the training would be comprehensive and ongoing: p. 68. Mr. Coles did not say that it was his recollection that he had told Mr. Slattery specifically that Mr. Coles would be coming to Queensland, but that was his expectation at the time.

Oral representations in March 1994

[32]
The representatives of the plaintiff attended the training session at the offices of the solicitors at the beginning of March 1994. On this occasion there was general information provided on how to run a franchise, and some documents were handed out, including one entitled “Your Future with ANREPS”: Exhibit 3, p. 23. According to Mr. Slattery, at the end of the first day he spoke to Ms. Lowrey and asked specifically when the defendants would start advertising the ANREPS name in Queensland; she responded that it would probably be about three months after the franchisees had started, to allow the plaintiff to set the office up and practice doing what it had to do: p. 24^[13]. During the training course there was some discussion (the details of which he could not recall) to the effect that someone would be coming to Queensland to take control of the Queensland area, because there had been no master franchise sold for Queensland: p. 25. Mr. Slattery’s evidence however did not go further as to other representations having been made by the defendants in the course of that training session, although he did say that they were not told that there would be no national launch: p. 24.

[33]
The defendants’ case was that what was stated about advertising at the training course was that there would be no national advertising, and that group marketing and advertising would not occur for several, possibly three, months. Ms. Lowrey said that at the training session Mr. Wiles had stated that there would be no advertising, either on a national level or a state level, until the people had learned their business, and that on the final day of the session he had said to everyone:

“This is not a get rich quick scheme; if you think that you are going to get rich overnight, if you think there is going to be huge advertising then, please, stand up and walk away now”: p. 350 (and see p. 438).

She also said they did not say they would provide any kind of formal launch: p. 439. Mr. Wiles said in his evidence that at the training session he made it very clear to everyone that there would be no national advertising or local launches: p. 573, p. 575. He said that advertising was going to work through the franchisee level, that there would be levies pooled, and eventually that sum would be spent in a manner which would be beneficial to the franchisees, particularly through promotion at home shows and other shows where the display could be used over and over again: p. 575.

[34]
Mr. Coles was not at the training course in March 1994, and therefore could not say anything about what was or was not said then. However, some other people who were present were called. Mr. Dyke was the ANREPS franchisee in the Redlands area (p. 255) and recalled going to a two day training course conducted by Mr. Wiles at the office of a Brisbane solicitor: p. 255. It was suggested by Ms. Lowrey that he attended the second training course, not the first, but he did recall Mr. Slattery coming in to the course on one of the two days (p. 642)^[14] and Mr. Slattery said he did not attend the second training course. His recollection of the training course was that there was what he described as “some salesman talk” including “if anyone didn’t want to be successful they could leave now”: p. 639. He said that there was at least one statement that there would be exposure on national TV and in the papers to support their efforts and denied that he had been told that there would be no national advertising or national launch: p. 639. Mr. Dyke recalled some talk during the training course as if national advertising to support ANREPS was part of the overall package, and he recalled the term “national launch” being used, although there was nothing specific indicated: p. 648. He acknowledged that while he had been involved there had been two occasions when there was some exposure of this concept on a lifestyle programme, and one 15 second commercial: p. 257, p. 640.

[35]
Another franchisee who was at the meeting was Mr. McKenzie, who became the franchisee for the Caloundra area^[15]: p. 233. He said that he went to the training course run by the defendants which Mr. Slattery also attended (p. 234) and this was confirmed by his business assistant who went to the course with him: p. 285. He said he was led to believe that there would be national and Queensland advertising, but his evidence about this was vague and it was not clear that it had been said at the training course. His evidence about what was said at the training course was not always consistent. He said that at the training course Mr. Wiles had said there would be national advertising in the media (p. 248) and did not recall his saying that there would be no advertising on a broad basis for at least three months: p. 249. He could recall some suggestion of a national launch but nothing more than that: p. 253.

[36]
When recalled for further cross-examination he initially said he did not recall any mention of national advertising at the first training course (p. 456) but he did recall Mr. Wiles saying that it was not a get rich quick scheme and if they thought they were going to get rich overnight they should walk away now: p. 247. He did not recall Mr. Wiles saying there would be no national advertising, either at all or for at least three months, although he thought that this was said at some other point: p. 457. Under re-examination, he said that during the training course there had been statements that there would be national advertising on the media and on television, and there had not been the statement that there would be no national advertising: p. 461. He said that had he been told there would be no national advertising he would not have got involved: p. 462. However, when asked further questions specifically about what was said at the training course, he again said he could not recall anything about advertising being mentioned at the training course, although it had been referred to at later meetings: p. 462. Overall, I found Mr. McKenzie’s evidence about what was said at the training course quite unsatisfactory.

[37]
His assistant, Ms. Camelinat also gave evidence. She recalled that at the training course she was told by one of the defendants (she could not recall when) that national advertising was to be undertaken: p. 285. She rejected Mr. Wiles’ version of what was said: p. 629. However she did not support any representations about a national launch.

[38]
Part of the difficulty in assessing the evidence about what was said at the training course about advertising is that there can be different forms of advertising. One method is to persuade a television program to do a story about your business, which has the advantage of lasting much longer than a commercial, presenting more information and often implying some form of editorial endorsement. It has the further advantage that commonly these things are not paid for by the business concerned. On the other hand, there is the disadvantage that this sort of thing is difficult to arrange, particularly on a repeat basis. Apparently some of the lifestyle programs did display some interest in this, no doubt because of the “do it yourself” element: p. 422. In addition, news magazine programs occasionally took an interest in the battle between this small new company and the established industry of real estate agents. It was exposure on “A Current Affair” which gave the defendants’ small business its first big kick along, and encouraged the idea that the business would be franchised Australia wide. Mr. Coles was also instrumental in pushing this line: p. 128-9. Obviously, however, once that story had been done once it is unlikely to be of interest again, at least to the same organisation.

[39]
Nevertheless, in late 1993 and early 1994 there had been some success of this kind, and the defendants had Mr. Coles available who was supposed to be an expert in this sort of thing, and may well have believed as a result that they were in a position to get more of this “free” advertising. If they thought that business was going to be “advertised” nationally in this way, through the efforts of Mr. Coles, they may well have been expressing that expectation to new franchisees in early 1994. At that stage Mr. Coles was still around, and the defendants may well have expected that he would have further success in this area in the future^[16].

[40]
On the other hand, it seems clear that there was no realistic prospect of a substantial national paid advertising campaign being financed by any of the defendants. I am satisfied that there was not at any material time either the funds available to do this, (p. 336) or any realistic prospect that there would be sufficient funds available to do it in the future, and the defendants must have known this. The franchise fees were not being put aside for advertising, even in part: Ex. 18. The “advertising levy” was too small to accumulate funds for any significant national advertising campaign within a reasonable time, and was intended for use (at least initially) on promotional material: p. 575. If franchisees had been promised such advertising, the promises would clearly have been without any objective foundation.

[41]
There were advertising levies payable under the franchise agreements, which were supposed to be paid into a separate account and used to fund advertising at a broader level than within the territory of a particular franchisee. The capacity of such an arrangement to fund significant advertising would depend on the number of franchisees who were paying in to the fund, and it would be plausible to expect that there would be relatively little money available until such times as the various franchisees were all established and all paying their advertising levies; by then money would be coming in as much as it ever would. It would be plausible that the defendants may well have explained that money paid by way of advertising levies would not be used for advertising until the whole system was in place and everyone was contributing. This is however not the defendants’ case^[17]. Their case is that, far from promising advertising, Mr. Wiles specifically warned them that there would be no advertising, at least for a period of a few months, and that there would have to be a demonstrated familiarity with the system by the Queensland franchisees before any advertising would occur. It may be that what was actually said at the training course about advertising was not as contended for either by the plaintiff or by the defendants.

[42]
The position of the advertising levy is interesting. It is referred to in the first disclosure document, Exhibit 1, as being “$75 per month per area”, but in the revised version which is included in Exhibit 5, reference to this was omitted. Nevertheless, Exhibit 5 did provide for an advertising levy of $300 per calendar month to be payable by the plaintiff to the franchisor: clause 3.11, and see item 3 in the schedule on p.36. That indicates that as at May 1994 the intention of the defendants was that there would be a fund to which franchisees would contribute which would be used for “advertising to be undertaken by the franchisor on behalf of the franchisee and the other franchisees of the franchisor”: clause 7.1. It does appear however that in practice the advertising levy was not collected^[18].

[43]
Counsel for the plaintiff submitted the defendants’ evidence as to what was said at the training course was unreliable, focusing particularly on the evidence of Ms. Lowrey at p. 350 that Mr. Wiles had said during the seminar “If you think you are going to get rich overnight; if you think there is going to be huge advertising then, please, stand up and walk away now”. Various witnesses accepted that part of this was said, with reference to getting rich overnight^[19], but none of the other people who attended the training course were prepared to accept that anything had been said to the effect of there not going to be advertising, or at least significant advertising, by ANREPS, and I think it unlikely that they would have all forgotten this if it had been said. Their recollection, in-so-far as they had one about advertising, was rather that advertising had been promised, or at least spoken of as something that would occur, than as something which would not occur. That is consistent with their clear expectation later in 1994 that there would be advertising. Mr. Slattery expected ANREPS to be contributing to it: p. 293.

[44]
There is also the consideration that in the disclosure document, one of the services said to be provided by the franchisor is “group marketing and advertising” and this is referred to not only in Exhibit 1 but in Exhibit 5, the revised version which was apparently current at the time of the training course, because it was included in the contract signed in May 1994. This, I think, is more consistent with the notion that as at March 1994 the defendants would have been speaking in positive terms about ANREPS’ advertising rather than speaking of it as something that was not going to happen.

[45]
In these circumstances I am not prepared to accept that Mr. Wiles said at the training course to walk away now if you expect huge advertising. The difficulty is that the evidence on the plaintiff’s side as to what he did say is so vague that it is difficult to make any finding of any particular representation as to advertising, which was less general than the proposition that there would be advertising by the franchisor. In context that would have to be taken to mean that there would be some, not insignificant, advertising.

Finding of representations

[46]
I find that the representations contained in the disclosure document, Exhibit 1, were made by one of the corporate defendants (through Mr. Coles) when he provided a copy of that document, Exhibit 1, to Mr. Slattery. On the whole, and notwithstanding some caution about the reliability of Mr. Slattery’s evidence, I am prepared to accept, and find, that Mr. Coles also represented orally that ANREPS was going to have a Queensland launch at some stage, that there was going to be an Australia-wide national launch, that there was going to be some advertising provided by ANREPS and ongoing marketing of the ANREPS name, that there would be a senior officer of ANREPS based in Brisbane, that there would be a training course, and that an operations manual would be provided.

[47]
These representations are largely consistent with, and were apparently based on, various statements in the disclosure document; I accept that Mr. Coles went through that document in detail with Mr. Slattery. For reasons given later, insofar as there was any breach of the Act as a result of anything said by Mr. Coles, that can only be as a result of any representations also made in the disclosure document, and it is sufficient to address that issue.

[48]
With regard to the representations during the training course, I am not prepared to accept the evidence of the defendants that they said during that course, in effect, that there was not going to be any advertising paid for by ANREPS, at least for some significant time. On the whole, the evidence indicates that it is more likely than not that there was some statement to the effect that, if you think this is a get rich quick scheme, you should leave now, but I am not persuaded that that also made reference to extensive advertising. All of the participants in the course seem to have had the impression some way or another that there was going to be advertising and marketing by ANREPS, and I think it unlikely that they would have been left with that impression had there been some express disavowal of advertising by ANREPS during that training course.

[49]
The difficulty from the plaintiffs’ point of view is that the evidence as to what representations were made is really quite unsatisfactory as to the content of any particular advertising promised, but on the whole I am persuaded on the balance of probabilities that there were statements made by the defendants to the effect that there would be advertising by ANREPS, although I think it probable that there was some qualification imposed by the defendants as to when that would start, that is there was an indication that there would not be immediate advertising by ANREPS. The effective representation however was that in a few months there would be some, not insignificant, promotion and advertising.

[50]
In terms of the statement of claim therefore I am satisfied that the representation (a) referred to above was made by the provisions of the disclosure document orally by Mr. Coles, as was representation (b) and (c). I am satisfied that representation (d) was made in the disclosure document: Exhibit 1, orally by Mr. Coles, and orally by the defendants during the training course. As to representation (e), I find that representation as to a national launch was made in the disclosure document and orally by Mr. Coles, and that a representation as to a local launch was made orally by Mr. Coles. I also accept that Mr. Slattery was told by Mr. Coles in October 1993, and by the defendants at the training course, that there would be a senior officer of ANREPS coming to Brisbane. I am not persuaded that there was any oral representation that franchise fees were going to be used to develop each individual franchise area with a part being allocated for the development of different franchises.

Were the defendants knowingly involved?

[51]
The test is that derived from Yorke v. Lucas (1985) 158 CLR 661 and approved by the Court of Appeal in Remote Data Systems Pty Ltd v. Hoover [2000] QCA 116 at [40]. I have found that the defendants were knowingly involved in the creation of the document, Exhibit 1, and were responsible for its use by Mr. Coles in October 1993. It was a document intended by them to be used as he was using it, and he was relying on it as the basis of what he told Mr. Slattery. He had been provided with that document by the defendants for that purpose, and that the defendants were responsible for the content of that document. The defendants are the people responsible for the terms of Exhibit 1 and its use by Mr. Coles. Insofar as that was the source of any such representation, the responsibility of the defendants for the disclosure document, Exhibit 1, in my opinion makes them also responsible for oral representations based on the content of that document. However, insofar as Mr. Coles made representations which went beyond the content of the document, for example, by representing there would be a Queensland launch, there was no evidence that that representation was made by him as a result of anything said or done by the defendants. He said the disclosure document was his source of information: p.65. Insofar as Mr. Coles may have given any content to the concept of a national launch, and it is not at all clear that he did, although he may well have had his own ideas as to what that would involve, he admitted that he had not discussed this with the defendants (p. 75), and that he was not aware of any plans on the part of the defendants for such a launch (p. 66), and it therefore follows that, insofar as Mr. Coles may have fleshed out the bare representation that there would be at some future time something in the way of a national launch, if that was a contravention of the Act, it was not a contravention in which the defendants were knowingly involved. The defendants are therefore liable under s. 75B. As to anything said at the training course, it was said by one of them, and no attempt was made to distinguish between them as to liability on such basis: they worked as a team: p. 486. They are therefore liable under s. 75B.

Subsequent history of ANREPS

[52]
Ultimately all of the Queensland franchises closed down. Mr. McKenzie closed his business in about July 1994, having only made two sales: p. 242. He never actually signed the franchise agreement or paid anything other than the deposit for his franchise fee: p. 243, 234. His territory was subsequently taken over by a Ms. Glass (p. 398) although that was arranged by the defendants rather than by Mr. McKenzie, who does not seem to have been aware that they did so: p. 252^[20]. They ran the business for about 18 months or 2 years (p. 399) and lost a lot of money: p. 408-9. Mr. Dyke who was the franchisee in the Redlands area and kept going until late 1995 or early 1996 (p. 260) eventually abandoned the businesses as a result of advice that ANREPS had stopped trading in Western Australia: p. 259. That may have been in conjunction with the dissolution of the first and second defendants.

[53]
In some states the business is continuing, in the sense that there are a number of individuals who are operating the ANREPS scheme, although they are now doing so as independent entities. There are some former franchisees in Western Australia who are still trading independently: p. 392. Mr. Bingall is operating the business in Melbourne, having been the operator of ANREPS for Victoria since 1995: p. 308. He is apparently the only operator in Melbourne, where he has about 20 to 30 clients on his books at a time: p. 324. His business is surviving, but obviously it has not taken off in the way contemplated by some of the enthusiasts for this idea. Mr. Bishop is continuing the operation in South Australia, but also on a relatively modest scale. Apparently he took over the intellectual property rights associated with ANREPS when the first and second defendants got into difficulties.

Can the plaintiff sue?

[54]
At the time representations were made in October 1993, the plaintiff had not been incorporated. That however, in my opinion, is not a bar to the plaintiff’s recovering damages. Under s.82 it is necessary in order for the plaintiff to be able to recover to prove that it had suffered loss or damage by conduct of the corporate defendants done in contravention of the relevant provision of the Act. It does not matter whether the representation was made to the plaintiff, so long as the plaintiff suffered loss or damage and that loss or damage was caused by the contravention. The plaintiff’s case is that it was induced to enter into the franchise agreement, and made various other payments, by conduct which was in contravention of s. 52, even thought that conduct occurred some time earlier. Whether that is so is a question of fact, but if there is causation in fact, that, in my opinion, is all that is required, and it is not necessary for the plaintiff to show that the representation was made directly to it, or that it was in existence at the time representation was made. It is sufficient that the relevant representations were made directly to Mr. Slattery and Ms. Moore, and that the plaintiff is the business vehicle used by them to act on the representations, so that it suffered the loss as a direct result of the conduct directed at those individuals: Janssen-Cilag Pty Ltd v. Pfizer Pty Ltd (1992) ATPR 41-186.

Representations as to future matters

[55]
It was submitted, and I accept, that all of the relevant representations were as to future matters. Accordingly, s. 51A applies, and the representations are taken to be misleading unless the corporation had reasonable grounds for making them at the time they were made. A statement that a corporation will do something in the future is not made in breach of s. 52 just because the corporation ultimately does not do that thing, provided that at the time the statement was made it did reflect the corporation’s intention and there was nothing to prevent the corporation from giving effect to that intention in due course: Mobil Oil Australia Ltd v. Wellcome International Pty Ltd (1998) 81 FCR 475. Whether there were reasonable grounds for making the representation is to be determined as at the time the representation was made: Sykes v. Reserve Bank of Australia (1998) 88 FCR 511 at 513.

[56]
The plaintiff submitted that the defendants had not pleaded nor pursued the existence of reasonable grounds for making the representations, and that therefore they should be taken to misleading and deceptive on the basis that the defendants had not discharged the onus placed upon them by s. 51A. However, a plea of the existence of reasonable grounds is contained in para. 10 of the defence. There may be some difficulties with the particularisation of that allegation, but in practice the issue of whether or not reasonable grounds existed has been litigated^[21] and, particularly in circumstances where the defendants were not legally represented at trial, I am reluctant to cut off consideration of this issue on the basis of any inadequacy in the defendants’ pleading. I prefer to decide the matter on the basis of considering whether the defendants in fact discharged the onus on them in the light of the evidence that emerged at the trial.

[57]
In relation to representation (a), I accept that it was the intention of the corporate defendants to provide training and ongoing support to the Queensland franchisees, including the plaintiff, as at October 1993. With regard to the question of training, some training was provided in March 1994. I accept that there was a further training course conducted later in 1994, and I accept the evidence of Ms. Langeder that the plaintiff’s representatives were invited to attend that course: p. 373. I accept Mr. Slattery’s evidence however that he never actually received the advice of that course being held, and for that reason did not attend: p. 187. Mr. Slattery complained that he would have liked someone to have been with him in the office for a week just to check on the way he was conducting the business and provide some advice and assistance and guidance: p. 187. That might have been of some assistance.

[58]
Mr. Coles said that he saw Mr. Slattery speaking on the telephone on one occasion, and thought that there were some matters in his presentation which needed improvement, but that any problems that he had were able to be fixed: p. 146-7. It is not clear why Mr. Coles did not proceed to give any necessary advice to Mr. Slattery on that occasion (p. 189), and I am wary of this evidence; I think its real significance is rather that there is nothing very much wrong with anything Mr. Slattery was doing in terms of his trying to sell the service. It is, I think, a reasonable inference that there was an actual intention in October 1993 to provide training for the franchisees and their employees in Queensland, once franchises had been sold^[22]. The defendants had the capacity to provide training in the ANREPS system; it was not suggested to the contrary. I do not consider that there was anything misleading in relation to the provision of training.

No senior officer of ANREPS in Brisbane

[59]
The plaintiff’s case was directed more to the absence of support, advice and assistance, and focused on the absence of a senior officer of ANREPS in Brisbane who would be able to clarify matters which were important to the franchisees, in particular provide advice as to how to deal with clients and potential clients, in order to maximise the prospect of securing a sale, and also provide advice as to what could or could not be done in particular circumstances by the franchisee without risking acting as an unlicensed real estate agent. Mr. Slattery also referred to advice as to how and where they should advertise to best effect as some other assistance they would have appreciated from someone based in Brisbane: p. 34.

[60]
There was not ever a senior officer of ANREPS based in Brisbane; there was an office opened in Brisbane, and a young woman was employed to work there essentially in an administrative role: p. 350; she was able to assist to some extent with administrative matters, such as arranging for paper work to be processed properly and for stationery and supplies to be provided, to act as a liaison between franchisees and the Perth office of the defendants, to co-ordinate real property searches through a firm of solicitors in Brisbane, and to assist with regular meetings of franchisees. It was not her function to give advice as to how the system was supposed to work, or how clients should be dealt with, or what a franchisee should and should not do when dealing with potential purchasers. She assisted in setting up a computer program on the computer purchased by the plaintiff.

[61]
Mr. Slattery complained that when he did telephone her seeking advice about one of the matters which he felt there was a lack of support and assistance, she was unable to provide an answer and said she would ring Perth, a process which he found slow and unsatisfactory so that he ended up ringing Perth himself: p. 34, p. 161.

[62]
There was a good deal of time spent during the trial investigating the suitability or otherwise of the employee who was working in Brisbane. My general impression is that much of the criticism from Mr. Slattery and others was based on a misapprehension as to her proper role, which was not to provide advice and training as to how they should implement the ANREPS system. Her function was to provide administrative support (p. 350), and the defendants never asserted that her position in Brisbane amounted to a full time senior officer of ANREPS who would be capable of providing training and ongoing support to the plaintiff, or providing advice and assistance as to the conduct of the business. The defendants’ case was that there was at the relevant time an intention that there would be someone based permanently or substantially in Brisbane who would be able to provide this.

[63]
Initially the intention was to have a master franchisee for Queensland who would take responsibility for the whole State, but the persons who had expressed some interest in this changed their mind during 1993, prior to October: p. 671. Prior to October 1993, there had been discussions with Mr. Coles about his going to Queensland: p. 69. There was then a period when the defendants contemplated moving to Brisbane themselves (p. 348), and for that reason they did not appoint anybody else for some time: p. 672. Ultimately the position was offered to Mr. Coles in mid 1994, but by that stage the relationship with him was deteriorating (p. 72) and he was not prepared to take it up unless ANREPS was prepared to provide development capital in the order of $80,000 (Exhibit 17) which it could not: Exhibit 18.

[64]
The defendants’ position however was that at the relevant time their intention was that either one of them or Mr. Coles would be in Queensland for a good part of each month: p.509. In this way it was expected that support would be provided to the franchisees which would be as good as it had been in Perth, something which Ms. Lowrey said did not require a person in Brisbane full time: p. 499. It seems to me that there is some sense in this. Even though the plaintiff and other Queensland franchisees were dissatisfied with the level of support they were receiving, and the difficulty in obtaining answers to queries, I suspect that most of their dissatisfaction arose from the difficulty in getting the business off the ground in the absence of additional advertising. In these circumstances, they would have been looking for reasons as to why the level of business was inadequate, and one matter that would have concerned them would be whether they were operating the business properly themselves. On the basis of such explanation as I was given as to the difficulties caused by lack of support, it did not seem to me that overcoming them would have required the full time attendance of a senior officer of ANREPS in Brisbane, although it may well be that a good deal more attendance than occurred would have been beneficial.

[65]
The practical explanation appears to have been that in 1994 there were considerable problems in Western Australia which were attracting most of the time of the defendants (p. 414, p. 332), preventing them from providing as much practical support as they might otherwise have been able and willing to provide, but I am not persuaded that the absence of support at that stage indicates that there was an absence of intention to provide such support in October 1993 (or for that matter in March 1994). The position in October 1993 was that there was an expectation that there would probably be either the defendants or Mr. Coles based permanently in Brisbane, or they would be fairly readily available to provide such support as was necessary. There was no reason why that would not have then appeared objectively to be readily achievable, and in my opinion that provided reasonable grounds for making the representation.

[66]
Some of the plaintiff’s submissions about the importance of the guidance and support seem to me to involve an assumption that any difficulty with the system was that the plaintiff and the other franchisees were not implementing it properly. It does seem to have been more successful in Western Australia than elsewhere (p. 414), and that may well have been attributable in part to the closer attention which the defendants were able to pay to it, or possible to other factors not properly identified in the course of the trial. Nevertheless it is of some significance that the system does not seem to have worked as well anywhere else. There is some continuing business in South Australia, but only at a low level, and it appears that Melbourne is only supporting one modest business. The position may simply be that this idea, no matter how good it may seem in theory, just does not work very well in practice; there are really not all that many people who are willing to sell their own real estate, and then pay someone else for advice as to how to do so. My own impression is that this business was never going to be a success in Queensland, at least not the sort of success that the plaintiff (and no doubt the defendants) hoped.

[67]
However, I do not think that anybody realised that in October 1993; at that stage there was the example of reasonable progress in Western Australia, and a large number of inquiries prompted by some fortuitous free publicity, without any real experience in developing the business in other States, except for the push into South Australia, and at that stage it was too early to tell just how successful or otherwise that would be. Perhaps a massive advertising campaign could have made the difference, but the problem with that is that there was never any money and never going to be any money to fund the sort of campaign which would have been necessary to make ANREPS a household name. My overall impression is that the difficulties the franchisees were having in getting the business to work had more to do with the real nature of the business rather than any deficiencies any of them may have had in the way in which they were attempting to operate the businesses, because of any lack of training, guidance and support from the defendants (or anyone else).

Operations Manual

[68]
With regard to the operations manual, there were two documents provided, Exhibit 3 and Exhibit 15, and Ms. Lowrey was of the opinion that those two together with the kit which was provided to people purchasing the service were sufficient to enable the plaintiff and the other franchisees to run the business: p. 521^[23]. One difficulty with this is that neither Exhibit 3 nor Exhibit 15 explain exactly what it is that the franchisee does for the customer. I do not think there is any significance in the fact that Exhibit 15 is labelled a procedure manual rather than an operations manual. My concern is more that it does not contain details of just what it was that was to be done for the client by the franchisee: p. 81. This was a matter of some importance and delicacy, in order to ensure that the franchisee did not do anything which would constitute acting as an unlicensed real estate agent.

[69]
However, the question is whether, assuming at the relevant time the intention was to provide Exhibit 15 or something of that nature, there was an absence of reasonable grounds for the promise to provide an operations manual. I think it is of some significance that Mr. Coles was prepared to characterise Exhibit 15^[24] as in effect an operations manual: p. 81. In the circumstances and notwithstanding my own reservations about its effectiveness for that purpose, I am persuaded that by having the intention and the capacity to provide something like Exhibit 15 the defendants had reasonable grounds to make the representation that they would provide an operations manual. The defendants certainly had a capacity in October 1993 to provide a proper operations manual, and there is no evidence that they did not then intend to provide one. I think the inference is that they did have that intention. Strictly speaking it does not matter if in the end the manual provided was inadequate. There was no misleading here.

Group marketing and advertising

[70]
With regard to the representation that the defendants would arrange and implement group marketing and advertising, there were some grounds for making that representation, in that the defendants had available to them Mr. Coles who was seen as someone who had a good capacity to obtain publicity for the business in the media^[25], particularly free publicity, which was particularly valuable and useful. They intended to pursue this: p. 488. There was also the consideration that the franchise agreements provided for a system of advertising levies, and once the group became large enough and enough franchises were in place, this had the potential to produce a flow of funds sufficient to provide some group marketing and advertising^[26], although probably not very much unless the group became a good deal larger than it ever did. But there was no financial capacity to fund any significant advertising or marketing campaign from the resources of the defendants: p. 336. There was no intention to use franchise fees for this: p. 619. In these circumstances, the issue depends largely on the scope of the representation.

[71]
The attitude of the defendants to national advertising was, apparently, that there was an expectation (or perhaps hope) that in time the various advertising levies paid by the various franchisees could be pooled and, when the organization was sufficiently extensive, it would generate sufficient monies to fund national advertising: p.571. Ms. Lowrey recognized that this was not going to be practicable for some time because of the expense involved (p. 547) but hoped that it would be occurring when the group was large enough: p. 550-1.

[72]
In the light of this her concession that there was no intention in October 1993 to have national advertising program (p. 487) should, I think, be interpreted as a concession that there was no intention that there be one funded by the franchisor or that there would be one in the immediate future, but I think there always was an expectation and hope that in time this whole structure would grow to the point where the advertising levies would be able to fund some sort of national advertising campaign. Indeed, references to a group marketing program, and group marketing and advertising, remained on p. 7 of the form of the disclosure document in Exhibit 5, and I am satisfied that at all material times the defendants did have a hope and expectation that in due course there would be a national advertising campaign. In view of this, I think their attitude as expressed during the trial about extreme caution about advertising did not reflect their attitude at the time, as it was expressed during the training course, and as reflected earlier in relation to the contents of the disclosure document.

[73]
At another point, there was said to be an intention to have some national advertising in conjunction with a push for a new image, something required by the authorities in Western Australia as a result of one of the inquiries into ANREPS: p. 472. This, however, always depended on the availability of money, and it did not go ahead because the funds were never available: p. 475.

[74]
If the defendants had said that this is what they could do given their resources and this is what they intended to do, and had not done or said anything to indicate that there would be further marketing or advertising paid for by the franchisors, there would have been reasonable grounds for making such representation. However, I am ultimately persuaded that, on a fair reading of what is said in the disclosure document, Exhibit 1, what was represented was more than this. The passage headed “Advertising and Promotion” on p. 3 suggests that there will be national advertising which will involve advertising or promotion of the service by ANREPS. The introductory sentence suggests there has been some advertising and promotion by ANREPS, and my reading of the paragraph overall is that it suggests that that will occur and to a greater extent in the future, although not immediately. There is also the reference to group marketing and advertising as a service provided by the franchisor, which carries the implication that the franchisor will be paying for it, or at least contributing to its cost, and the same may apply to the reference to the benefit of “participation in the group marketing program”, although that is potentially ambiguous. Overall, the impression I received from reading the references to advertising and promotion in the disclosure document is that there would be some not insignificant advertising and promotion in the future by ANREPS.

[75]
I have already commented on the quality of the evidence as to what was said about advertising during the training session, but I am prepared to accept, as indicated earlier, that statements were made to the effect that there would be advertising and promotion by the franchisor, which to be meaningful, must be interpreted as being more than insignificant. Overall, therefore, in my opinion the representations as to advertising and promotion went beyond that for which reasonable grounds would have existed, and therefore amounted to misleading conduct. To put it another way, I am not persuaded that there were reasonable grounds to support the representations actually made.

[76]
I should say that I have reached this conclusion with some reluctance, because I do not believe that there was any deliberate wrongdoing or deliberately misleading conduct on the part of the defendants. I think that at the time they believed in the business that they were promoting, and they believed it would be successful. They hoped and expected that there would be successful group marketing and advertising. But it seems to me that, just as an intention to mislead or deceive is not relevant to s. 52, an honest belief in the representation is insufficient to discharge the onus established by s. 51A in the absence of reasonable grounds. Reasonable grounds must be objectively reasonable: Sykes v. Reserve Bank of Australia (1998) 88 FCR 511. Personal belief on the part of the representor is insufficient: Cummings v. Lewis (1993) ATPR (Digest) 46-103.

No national launch

[77]
With regard to the national launch, it was conceded by Ms. Lowrey (and I think not disputed by Mr. Wiles) that as at October 1993 there was no intention to have a national launch: p.478. It was not disputed that there never was one. There had been a State launch attempted in South Australia in 1993 which was unsuccessful (p. 112-4) and because of this the decision had been taken prior to October 1993 not to have any more formal launches: p. 500. The representation that there would be such a launch was therefore misleading.

[78]
I must say however that I find great difficulty in seeing how that in itself was of any real significance. There was nothing in the disclosure document, Exhibit 1, to indicate what the national launch would have been, and Mr. Coles did not say because he did not know: p. 114. There was no evidence that anything was said about the content of the national launch at the training session in March 1994, indeed there was no reliable evidence that anything was said about it at all on that occasion. In circumstances where the concept is so vague and undefined, it is difficult to attribute any particular significance to it, and difficult to believe that anyone in the position of the plaintiff would have attributed any particular significance to it in itself. On its own I would not regard that as being of sufficient significance for there to be said to be any identifiable loss caused by it, but taken in conjunction with the representation as to advertising on a national or group basis, it lends colour to the broader picture that this was a business which would be actively promoted by the franchisor.

Defences

[79]
The defendants relied on clause 41 of the franchise agreement, Exhibit 5, which provides as follows:

“The franchisee acknowledges that prior to having executed this agreement the franchisee had –

Received the disclosure statement and has read through the same and fully understood its context.
Carefully read the provisions of this agreement and has understood them.
Taken independent legal and other professional advice in respect of this agreement.
Not relied upon any statement, representation or warranty made by ANREPS and/or the franchisor or their employees and agents other than as is set out in this agreement”.

In particular it was argued that the inclusion of the revised version of the disclosure statement in Exhibit 5 and clause 41 meant that the agreement was entered into only in reliance of the revised version of the statement in Exhibit 5, and the first and second defendants effectively thereby communicated their abandonment or disavowal of any further representations in Exhibit 1 (or orally by Mr. Coles), so that there was no liability for them, or at least the plaintiff was estopped from asserting to the contrary.

[80]
However, it is well established that exemption clauses of this nature, which purport to exclude the effect of representations in fact made on persons entering into contracts, are not an effective answer to a claim brought for breach of the Trade Practices Act: see for example Clark Equipment Australia Ltd v. Covcat Pty Ltd (1987) 71 ALR 367 at 371; Oraka Pty Ltd v. Leda Holdings Ltd (1997) 80 AJPR 41-558. None of the defendants drew the plaintiff’s attention to the fact that the disclosure document had been changed, and the plaintiff was not in fact aware that the situation was any different from what had been earlier represented to him by, and based on, Exhibit 1, when Exhibit 5 was signed.

[81]
A number of other matters were advanced in submissions on behalf of the defendants. They can be dealt with briefly. I do not accept that the plaintiff was failing to any significant extent to conform with the system as developed by ANREPS. There is no evidence that the plaintiff did anything inconsistent with the system or failed to follow the system completely when dealing with customers. There is some evidence that some people were complaining, but no evidence that this resulted from a failure to follow the system as distinct from any other deficiencies or other circumstances. I am not persuaded that there was any pressure on Mr. Slattery or Ms. Moore from other businesses conducted by them which took them away from this business (p. 176; p. 677); the position rather was that the lack of activity in this business meant that they reasonably felt that their time, particularly that of Ms. Moore, could be more usefully applied to other businesses: p. 163^[27]. I am not persuaded that there was any significant adverse effect from any neglect of this business by them. Even if there were times when the office was shut or being minded by someone else (a sub-franchisee or Ms. Langeder) there is no evidence that this had any significant adverse impact on the business. I do not consider that this is a matter of any consequence; it certainly does not rise to the level of being a failure to mitigate damage.

[82]
There is also no substance in the argument that the franchise agreement failed because of force majeure. Nothing that happened to the business in Queensland could possibly be characterised in this way. There was some opposition from real estate agents no doubt, but in the area of the plaintiff’s franchise this seems not to have been a significant factor (possibly because the plaintiff’s business never penetrated to the extent where it was perceived as a real threat to the real estate agents). There is no substance in this submission.

[83]
With regard to the difficulties the defendants had, I do not doubt that they were beset with considerable difficulties (p. 414), and that the failure of this business to take off in the way they had initially hoped must be a considerable personal disappointment to them. Nevertheless these factors do not justify any failure on my part to enforce the plaintiff’s rights under the Trade Practices Act.

Causation

[84]
Mr. Slattery said that he understood the representations as to marketing and advertising as indicating that there would be promotion, marketing and advertising by the franchisor. He saw this as giving ANREPS an identifiable corporate image, and he relied on this in buying the franchise: p. 57. He saw it as crucial: p. 24. I accept this. He also said that if he had been told that there was not going to be national advertising he would not have entered into the franchise agreement: p. 58. I am cautious about evidence of this nature, because it is likely to be influenced by hindsight, but on the whole, I think it is more likely than not that, had it not been for the representations that there would be promotion, marketing and advertising by the franchisor, the plaintiff would not have entered into the franchise agreement. It was clearly not the only thing relied on; Mr. Slattery also had advice from an accountant, a bank manager, and his solicitor (p. 168) and had spoken to some of the franchisees in Perth: p. 174. But this does not matter.

[85]
The test of causation in this area has recently been clarified by the High Court in Henville v. Walker [2001] HCA 52. McHugh J at para. 106:

“If the defendants’ breach materially contributed to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions have played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But some cases are exceptional.”

In the present case the immediate cause of the plaintiff’s loss was its entry into the franchise agreement and its conduct of the franchise business. That was caused, in the relevant sense, by the representations made in the disclosure document and by Mr. Coles in reliance on the disclosure document, and by the defendants at the training course, as to marketing and advertising. Those representations materially contributed to the making of that agreement, and the conduct of that business, by the plaintiff. Accordingly, the defendants are liable for the loss or damage suffered as a result of entering into the agreement and conducting the business.

Any deficiency in the plaintiff’s efforts

[86]
During the trial, some time was spent investigating the question of whether the failure of the plaintiff’s business was caused, at least to some extent, by any deficiencies in the way in which the plaintiff was operating it, and a lack of application to the business on the part of either Mr. Slattery or Ms. Moore. This occupied a not insignificant part of the trial, and gave rise to some interesting evidentiary points, but it seems to me that the effect of the decision in Henville v. Walker (supra) is that any failure on the plaintiff’s part to take reasonable care either in relation to entering into the agreement or in relation to the conduct of the business is irrelevant. The High Court has in effect confined the scope of relevant conduct on the part of the plaintiff in such circumstances to conduct which would amount to a failure to mitigate loss. This, it seems to me, is the practical consequence of the adoption by McHugh J at para. 140 of the test that only loss or damage flowing from the unreasonable conduct of the plaintiff will be excluded. There is no basis for any conclusion that the plaintiff had failed to mitigate its loss in the present case. There is no such allegation in the defence. It is therefore not necessary for me to consider this issue further.

Quantum of Damages

[87]
Quantification of the damages to be awarded under s. 82 is a matter of establishing causal connection between the contravening conduct and the loss: Marks v. GIO Australia Holdings Ltd (1998) 196 CLR 494. That will commonly equate to the damages appropriate in tort, because ordinarily in the absence of misleading or deceptive conduct, the plaintiff would not have done the thing which is productive of loss. In such circumstances the loss produced by doing what would otherwise not have been done is the appropriate measure of damages. Indeed, that was the measure approved by the High Court in Henville (supra).

[88]
Applying that approach in the present case, which I consider appropriate in the light of the particular circumstances of this matter, the loss falls into two categories: the amount paid for the franchise by the plaintiff, and the loss suffered by the plaintiff as a result of attempting to operate the franchise business. The former amounts to the sum of $50,000; the latter is shown by the evidence of the actual payments made by the plaintiff in the course of operating the business ($36,691 – Exhibit 8, p. 50, after deducting the balance franchise fee) less the income in fact received ($6,369.76 – Exhibit 12, after deducting the “cash deposit” of $5,000: p. 51). This produces an operating loss of the business of $30,311.71. Accordingly, the total of the plaintiff’s loss and recoverable damages comes to $80,311.71.

[89]
The plaintiff is also entitled to interest and I will allow interest for 7 years, since the plaintiff’s loss was effectively fully quantified as at October 1994. There were some payments made after that date, but they appear to relate to expenses incurred earlier. Bearing in mind the period involved, and the decline of interest rates generally over that period, I think the appropriate rate overall is 8%. I will therefore allow interest in the sum of $49,974.56.

[90]
There will therefore be judgment that the third defendants pay the plaintiff $130,286.27. Costs will follow the event, and include reserved costs if any and the costs of the proceedings in the Federal Court, if I have jurisdiction to deal with those costs.

Footnotes

[1] Page 2 – because of their financial problems: p. 418; they were unable to pay tax debts: p.536.

[2] The plaintiff paid a deposit of $2,000 in January 1994 (p. 21, 346, Exhibit 2) and the balance of $48,000 on 22 April 1994: p.297.

[3] “Rightly or wrongly, the law, as it has evolved, has made the earning of an agreed commission an all or nothing affair, on the one hand denying to agents any reward despite substantial labour on their part, and on the other handsomely rewarding agents who with little effort manage to effect a sale” – L.J. Hooker Ltd v. W.J. Adams Estates Pty Ltd (1977) 138 CLR 52 at 78 per Stephen J.

[4] These were provided to customers in the form of a kit, an example of which became Exhibit 29.

[5] He was franchise development and marketing officer: p. 484. His role included talking to potential franchisees (p.485) and I accept that, notwithstanding Ms. Lowrey’s evidence at p. 483, he had authority to provide copies of the disclosure document Exhibit 1. He became general manager in January 1994: p. 69, p. 663, Ex. 44.

[6] Page 480; Mr. Slattery agreed that she arrived on the Thursday before Easter (p. 29, 191) which in 1994 began on 1 April. She stayed with Mr. Slattery for a time (p. 29, 366) and I accept that she helped set up the plaintiff’s office: p. 365.

[7] There was a fee of $370 when the customer obtained the kit, and a further (larger) amount payable on the completion of a sale: p. 13.

[8] This customer had rung the Perth office, and been referred by it to the plaintiff: p. 223.

[9] Mr. Slattery denied (p. 183) this but I prefer the evidence of Mr. Wiles on this, particularly in view of the timing of the signing of Exhibit 5.

[10] He claimed to have been surprised by the suggestion that they were expecting the franchisor to advertise, when that had not been promised: p.578. I do not find that explanation plausible.

[11] This is the amount set out in Exhibit 8, plus the deposit of $2,000.

[12] Probably also after 2 January 1994 when Mr. Coles was appointed General Manager: p. 663, Ex. 44.

[13] Ms. Lowrey under cross-examination conceded that she might have said something like that, but with the emphasis on when advertising would not occur: p. 550.

[14] At one point Mr. Dyke said that he could not recall Mr. Slattery at this course (p. 255) but he later clarified this.

[15] Although he never signed the franchise agreement: p. 243.

[16] They expressed confidence in his ability to get publicity for the business in the media: p.472.

[17] Although it may have been their intention at the time: p. 571. Until there was a significant amount the intention was to use the fund generated by the levies to provide promotional material: p. 575.

[18] Page 673. They were dropped in Victoria (p. 320) and were apparently not paid by the plaintiff. as there was a cross-claim seeking to recover it by the second defendant: defence and cross-claim para. 22.

[19] Mr. Slattery p.681; Mr. McKenzie p. 461; Ms. Camelinat p. 632; Mr. Dyke p. 639.

[20] Although she purchased some office equipment from him: p. 627, 402.

[21]It was expressly relied on during the trial by the defendants: p. 93.

[22]And see p. 346 as to intention in March 1994.

[23] The evidence of Mr. Wiles was similar: p. 666.

[24] He conceded there was not much in the way of instructions in Exhibit 3: p. 79. His statement about Exhibit 15 at p. 125 is inconsistent with his answer at p. 81, and an indication of his hostility now to the defendants.

[25] Later in 1994 there was some publicity, in magazines and on a couple of lifestyle TV shows, and one or two brief television commercials: p. 596, p. 257. This was after the plaintiff had closed its office: p. 43.

[26] Mr. Wiles said that this was the basis of the statements about group marketing and advertising in Exhibit 1 and Exhibit 5: p. 616-7.

[27] This did not put the plaintiff in breach of the franchise agreement: see Exhibit 5 ch. 14.2.

Editorial Notes

Published Case Name:
Realtail Pty Ltd v Australian National Real Estate Private Sales Pty Ltd
Shortened Case Name:
Realtail Pty Ltd v Australian National Real Estate Private Sales Pty Ltd
MNC:
[2001] QDC 269
Court:
QDC
Judge(s):
McGill DCJ
Date:
31 Oct 2001

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited List of Cases Cited by this judgment

Case Name	Full Citation	Frequency
Clark Equipment Australia Ltd v Covcat Pty Ltd	(1987) 71 ALR 367	1 citation Jump To Cite 1 - (1987) 71 ALR 367
Cummings v Lewis	(1993) ATPR (Digest) 46-103	1 citation Jump To Cite 1 - (1993) ATPR (Digest) 46-103
Henville v Walker	View on:JADE[2001] HCA 52	1 citation Jump To Cite 1 - [2001] HCA 52
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd	(1992) ATPR 41-186	1 citation Jump To Cite 1 - (1992) ATPR 41-186
L J Hooker Ltd v W J Adams Estates Pty Ltd	View on:JADE(1977) 138 CLR 52	1 citation Jump To Cite 1 - (1977) 138 CLR 52
Marks v GIO Australia Holdings	View on:JADE(1998) 196 CLR 494	1 citation Jump To Cite 1 - (1998) 196 CLR 494
Mobil Oil Australia Ltd v Wellcome International Pty Ltd	(1998) 81 FCR 475	1 citation Jump To Cite 1 - (1998) 81 FCR 475
Oraka Pty Ltd v Leda Holdings Ltd	(1997) 80 AJPR 41-558	1 citation Jump To Cite 1 - (1997) 80 AJPR 41-558
Remote Data Systems Pty Ltd v Hoover	[2000] QCA 116	1 citation Jump To Cite 1 - [2000] QCA 116
Sykes v Reserve Bank of Australia	(1998) 88 FCR 511	2 citations Jump To Cite 1 - (1998) 88 FCR 511 Cite 2 - (1998) 88 FCR 511
Yorke v Lucas	View on:JADE(1985) 158 CLR 661	1 citation Jump To Cite 1 - (1985) 158 CLR 661

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Realtail Pty Ltd v Australian National Real Estate Private Sales Pty Ltd[2001] QDC 269