Guirguis Pty Ltd v Michel's Patisserie System Pty Ltd
[2016] QDC 117
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- Unreported Judgment
- Appeal Determined (QCA)
- Guirguis Pty Ltd v Michel's Patisserie System Pty Ltd[2016] QDC 117
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Guirguis Pty Ltd v Michel's Patisserie System Pty Ltd[2016] QDC 117
Guirguis Pty Ltd v Michel's Patisserie System Pty Ltd[2016] QDC 117
DISTRICT COURT OF QUEENSLAND
CITATION: | Guirguis Pty Ltd & Ors v Michel’s Patisserie System Pty Ltd & Ors [2016] QDC 117 |
PARTIES: | GUIRGUIS PTY LTD ACN 151 423 577 (first plaintiff) and FREDERICK GUIRGUIS and KAREN GRACE GUIRGUIS (second plaintiff) v MICHEL’S PATISSERIE SYSTEM PTY LTD ACN 132 424 947 (first defendant) and MICHEL’S LEASING PTY LTD ACN 130 002 023 (second defendant) and RFGA MANAGEMENT PTY LTD ACN 071 765 609 (third defendant) and TRENT DELLIT (fourth defendant) and APLUS BUSINESS BROKERS PTY LTD ACN 098 689 840 (fifth defendant) and GEORGE METZAKIS (sixth defendant) |
FILE NO/S: | DC No 2515 of 2015 |
DIVISION: | Civil |
PROCEEDING: | Trial |
DELIVERED ON: | 27 May 2016 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 11-15, 18-20, 29 April 2016 |
JUDGE: | Koppenol DCJ |
ORDERS: |
|
CATCHWORDS: | TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – MISLEADING OR DECEPTIVE CONDUCT – FRANCHISE AGREEMENT – FALSE REPRESENTATIONS – “NO TRANSACTION” CASE – where representations purported to have been made – whether representations relied upon – where allegation that information should have been disclosed – whether failure to disclose amounted to misleading or deceptive conduct – whether representations not outlined in deed of prior representations & questionnaire could later be relied upon. CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DAMAGE – where express exclusions in contract – whether monetary recovery available. TORTS – NEGLIGENCE – ESSENTIALS OF ACTION FOR NEGLIGENCE – DAMAGE – CAUSATION – where express exclusion for liability for negligence in contract – whether monetary recovery available. Australian Consumer Law (Cth) Uniform Civil Procedure Rules, rule 173 Chappel v Hart (1998) 195 CLR 232, applied Henville v Walker [2001] HCATrans 18, applied Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, applied Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) [2016] QSC 5, followed |
COUNSEL: | R Ashton QC, with P O'Brien for the first and second plaintiffs D Chesterman for the first, second, third and fourth defendants |
SOLICITORS: | Thomson Geer for the first and second plaintiffs Thynne & Macartney for the first, second, third and fourth defendants Ferguson Cannon Lawyers for the fifth and sixth defendants |
The Case—Claim and Counterclaim
- [1]This case concerns a Michel’s Patisserie franchise business at a shopping centre in Townsville.
- [2]There is a claim by the plaintiffs against all defendants for $634,429.85 and a counterclaim by the first, second and third defendants (RFG) against the plaintiffs for $650,552.24.
Plaintiffs’ Claim
- [3]The plaintiffs’ primary claim is a “no transaction” case—namely that they would not have entered into the franchise business and related agreements (the agreements) but for the defendants’ alleged misleading or deceptive conduct (contrary to the Australian Consumer Law). Their other claims are (common law-based) for alleged negligent misstatement and breach of contract.
- [4]The misleading or deceptive conduct was said to have been (a) the making of false representations, and (b) the failure to disclose certain important matters. The representations alleged were that regular deliveries from Brisbane to Townsville in freezer trucks of snap-frozen product which would maintain its quality once thawed would not be a problem. They were said to have been made by Mr Metzakis (RFG’s agent) and Mr Dellit (RFG’s employee). The failure to disclose alleged was the defendants’ silence about a number of matters concerning uncertain future supplies from the Brisbane bakery Dysons.
- [5]Apart from having to prove, on the balance of probabilities, that (a) the alleged misleading or deceptive conduct was made out, the plaintiffs must also prove that (b) they relied on it, and (c) suffered loss as a result.
- [6]It is convenient to first address element (b)—reliance.
Reliance
I - The Representations
- [7]Both Mr and Mrs Guirguis gave evidence that they would not have entered into the agreements if the alleged representations had not been made or if the alleged uncertainty about future supplies had been disclosed.
- [8]Unsurprisingly, courts are cautious in accepting assertions of reliance in this context because they are regarded as essentially self-serving hindsight. They have little probative value unless the reliability of that evidence is confirmed by reference to objective factors.[1]
- [9]Mrs Guirguis said that she entered into the agreements in reliance upon her husband’s judgment. It was “really his call to make”, she said.[2]
- [10]Mr Guirguis said that “[a] lot of stuff … [m]aybe 100 things influenced my decision” to enter into the agreements; he had “maybe 200 discussions with 50 different people” and that “[a] lot of statements influenced my decision over a lot of months”; “[a] lot of people made a lot of statements. I did a lot of research. I read a lot of stuff on Google. I phoned maybe 100 people. I had dozens of discussions.” He also said that he was “swayed” to enter into it by the number of Michel’s Patisserie stores operating in Australia.[3]
- [11]Mr Guirguis was a mature and educated man who had held senior, highly-paid occupational health and safety positions in the resources and construction industries. He was not one to rush or be pushed into signing business agreements.
- [12]The plaintiffs signed the agreements on 26 March 2012. They had been sent the relevant agreement documents in mid-February. One of those documents was a Deed of Prior Representations and Questionnaire (Ex 39). It asked Mr and Mrs Guirguis to write down on those forms full details of any verbal or written statements, representations or warranties which may have been made to them about entering into the agreements and whether it influenced their decision to do so. Mr Guirguis read RFG’s covering letter of 16 February 2012 (Ex 88). From it, he understood the importance of the Questionnaire and that it might restrain him from later saying that he relied on some information if it was not written down in the Questionnaire.[4]
- [13]Mrs Guirguis answered “No” to all 24 questions. Mr Guirguis answered “Yes” to three questions (about lease terms, skills and ongoing support). He answered “No” to each of the other 21 questions, one of which (Q 22) asked about “[a]ny other relevant matter which may have influenced your decision to execute [the] Franchise Grant Documentation or proceed with the Franchise”.
- [14]In other words, both Mr and Mrs Guirguis did not mention on the Questionnaire form any of the alleged representations upon which they now rely in this case.
- [15]That is significant for present purposes. That is because an express declaration by a person in a contractual document that they did not rely upon pre-contractual representations may be evidence of non-reliance and the want of a causal link between the impugned conduct and any loss or damage flowing from the entry into the contract.[5]
- [16]Mr Guirguis attempted to explain his answers in the Questionnaire by saying that he thought that the questions were referring to what he called “formal” representations only and not to oral “informal” discussions (such as he had with Mr Metzakis). When confronted in cross-examination with his answers to the three questions to which he answered “Yes” and in which he specifically mentioned Mr Metzakis as the source of certain statements, Mr Guirguis said (contrary to his earlier evidence) that he did understand that the Questionnaire was not confined to only formal representations—but that Mr Metzakis had also made representations to him in a formal written document. However, he was unable to recall that particular document and it was not discovered pre-trial or produced in re-examination.[6]
- [17]Mr Guirguis also said that the questions in the Questionnaire were unclear and ambiguous.
- [18]However, Mr Guirguis received from RFG a follow-up letter dated 28 March 2012 (Ex 89). It noted the answers that he and his wife had given in the Questionnaire and added:
“You have both answered ‘no’ to this question [Q 22]. Accordingly, the Franchisor is proceeding on the basis that you did not rely upon any information in proceeding with the franchise and licence beyond that contained in the Franchisor’s Disclosure Document, the Premises Disclosure, Franchise Grant Documentation and your original Questionnaire.”
- [19]In cross-examination, Mr Guirguis said that he read the letter but did not understand that passage. When asked to explain the ambiguity, he agreed that it was not ambiguous and that he knew what the passage said—but he did not comply with it because he relied on so much information in addition to the “formal” representations alleged.[7]
- [20]The RFG letter also said that:
“The Questionnaire therefore allows you to place on the record information which you have relied upon which is not specified in the documents noted above.
It will also allow the Franchisor and Licensor, at the outset of your relationship with them, to correct or clarify any information you may have relied upon which is either incorrect or incomplete.
The Questionnaire is therefore of paramount importance to both you and the Franchisor and Licensor.”
It then invited Mr and Mrs Guirguis to advise RFG if they felt that they had not adequately completed the Questionnaire, so that “afresh Questionnaire” could be completed as soon as possible. It added:
“If you do not wish to complete fresh Questionnaires (and in [the] absence of a response we will assume that you do not), then we … will take it that you did not rely upon any information in proceeding with the franchise and licence beyond that contained in the Franchisor’s Disclosure Document, the Premises Disclosure, Franchise Grant Documentation and your original Questionnaire.”
- [21]Mr Guirguis did not avail himself of that opportunity, nor did he otherwise inform RFG that he did not properly or accurately complete the Questionnaire. That should be seen in the context of his evidence that he takes “great care” to ensure that what he writes down is “completely accurate”.[8]
- [22]In the circumstances, I have no difficulty in concluding that Mr Guirguis knew full well what was being asked of him in the Questionnaire but disingenuously attempted at the trial to convey the contrary impression. If he relied upon or was influenced by the things that he said that Mr Metzakis and Mr Dellit had told him—things that he said at the trial were so very important to him, he would have written them down on the form provided. He did not. He and his wife sought and obtained legal advice, including about the Questionnaire. They reflected on the franchise proposal and carefully read the documents again before signing them. They were then given the further opportunity to correct any inaccurately- or inadequately- completed answers in the original Questionnaire. Mr Guirguis could have set out details of the defendants’ alleged representations. So could Mrs Guirguis. They had that second opportunity. But they remained silent.
- [23]I am not satisfied that the plaintiffs entered into the agreements, borrowed funds to acquire and commenced operating the franchise, as their pleaded claim alleged—“in reliance upon and induced by” the defendants’ alleged representations.[9]
- [24]The element of reliance is not made out.
II - The Failure to Disclose
- [25]The allegations here were that (a) the defendants knew (or ought to have known) certain matters “prior to the plaintiffs’ entry into the agreements”, (b) the defendants did not disclose those matters to the plaintiffs before or after they entered into the agreements, and (c) had those matters (or any of them) been disclosed to them, the first plaintiff would not have entered into the agreement.[10]
- [26]The “matters” pleaded were said to be that:[11]
- (a)As at 23 March 2012, there were no companies currently able to manufacture and supply product to the Michel’s Patisserie system and achieve the requirements of the system;
- (b)As at 23 March 2012, bakeries across Australia had not been able to meet their contractual requirements and operate and produce products for Michel’s Patisserie stores;
- (c)As at 16 February 2012, the Dyson’s Bakery, being the suppliers for 56 Michel’s Patisserie franchisees was in financial difficulty and unable to meet orders;
- (d)Mr Connors (RFG) had deliberately refrained from enquiring as to Dyson’s solvency, “preferring not to ask”;
- (e)As at 2 April 2012, Dyson’s had been placed in administration, which outcome was the “worst case scenario”, and that it would “result in many disgruntled franchisees”.
- [27]Subparagraph (e) can be immediately disregarded because it is nonsense to say that prior to 26 March 2012 (the date on which the plaintiffs entered into the agreements), the defendants knew or ought to have known something “as at 2 April 2012”.
- [28]Subparagraphs (a) to (d) effectively allege a failure to supply product at all and not an inability to supply product from the Brisbane bakery.
- [29]There was no evidence that when the agreements were signed on 26 March 2012, there were any acute problems with supply to Townsville: indeed the unchallenged evidence of Mr G. Alford (RFG) was that the logistical arrangements that RFG had were such that regional franchises such as Townsville could be supplied by other bakeries (because regional stores were being supplied under RFG’s “frozen model”).[12]
- [30]However, as previously found (paragraph [23]), the plaintiffs did not enter into the agreements in reliance upon and induced by any representations about the location of the manufacturing bakery—and specifically, that product would be supplied from Brisbane. In any event, by the time that the plaintiffs’ franchise business commenced operation on 28 May 2012, any temporary disruption caused by the Dyson’s bakery problems had been remedied as the products were coming out of a bakery in Sydney.
- [31]The plaintiffs’ remaining contention—that RFG was legally obliged to disclose certain matters after the plaintiffs entered into the agreements—was not supported by any cited authority. The defendants submitted that the contention was misconceived—in that in the context of a no transaction case (as this is), once the transaction had been entered into by the plaintiffs, they were committed to a contract on a particular understanding about the state of affairs at that time. I accept the defendants’ submission. It is consistent with the principle of a “no transaction” case—that there would have been no transaction but for the alleged misrepresentation.[13]An obligation to make post-transaction disclosures would change the nature of that case. The plaintiffs’ contention is rejected.
- [32]The conclusion is therefore that the evidence does not establish the plaintiffs’ allegations. The obligation to disclose has not been made out and the contention with respect to reliance also fails.
Negligent Misstatement and Breach of Contract
- [33]These claims are unmaintainable because they are expressly excluded by clauses 12.24 and 23.10 of the Franchise Agreement (Ex 40). The plaintiffs did not submit to the contrary.
- [34]Clause 12.24 provides that the plaintiffs “release and forever hold harmless” the defendants:
“… from all actions, suits, proceedings, claims, demands, costs, expenses and or damages, at law or in equity, pursuant to contract, tort … or otherwise, which but for this clause they now have, or had at any time previously, or might have in the future, whatsoever or howsoever arising out of or in connection with:
…
any failure by a manufacturer, producer or supplier approved by the [first defendant] Franchisor to meet the standards specified in clause 5.7(a)(ii) hereof.
… .”
- [35]Clause 23.10 provides that the plaintiffs “acknowledge and agree” that:
“… e) the [defendants] shall not be liable to the [plaintiffs] in connection with any loss or damage which may be suffered by them in connection with the supply or non-supply of Products (including Michel’s Products) to the [plaintiffs] by parties other than the [defendants].”
- [36]Thus, even if these claims could be made out, the parties’ agreements preclude any monetary recovery.
Disposition
- [37]Given my findings that the element of reliance has not been made out, the claim for alleged misleading or deceptive conduct must fail. The claims for alleged negligent misstatement and breach of contract are unmaintainable because they are excluded by the parties’ agreements. Accordingly, no further analysis of the plaintiffs’ claims is required.
- [38]The plaintiffs’ claims are dismissed.[14]
The RFG Defendants’ Counterclaim
- [39]RFG’s counterclaim against the plaintiffs is for $650,552.24.
- (a)As against the first plaintiff company—on breaches of the Franchise Agreement and the Outlet Licence Agreement, for franchise service fees, marketing levies, rent and outgoings, the costs of surrender of the lease and for the removal of plant and equipment; and
- (b)As against Mr and Mrs Guirguis—on their guarantees for their company’s obligations to RFG.
- [40]The plaintiffs abandoned the franchise premises on 18 July 2013 and never returned. The Franchise Agreement was to continue until 2022.
- [41]By letter dated 22 July 2013 (Ex 46), the plaintiffs purported to terminate the agreements. The Franchise Agreement (clause 11.6) empowered the plaintiffs to do so only if they were “in compliance with [its] provisions”. However, at that time, the plaintiffs owed more than $31,000 to RFG for unpaid fees and levies. Therefore, because of that payment non-compliance, the power to terminate did not then exist. Consequently, the purported termination was invalid and of no effect.
- [42]Then, by letter dated 25 July 2013 (Ex 155), RFG itself terminated the agreements and excluded the plaintiffs from the premises. That was based upon the plaintiffs’ fundamental breach of their contractual obligations by abandoning the franchise and business.
- [43]The plaintiffs did not dispute the validity of RFG’s termination, in the event that their own termination were found to be invalid.
- [44]The monetary breakup of the counterclaim is set out over 5 pages in Exhibit 159. In summary, the categories are:
(a)Franchise Service Fees (to 18 July 2013)$20,138.56
(b)Franchise Service Fees (18 July 2013 to 26 May 2022)$215,857.34
(c)Marketing Levies (to 18 July 2013)$11,247.76
(d)Marketing Levies (18 July 2013 to 26 May 2022)$92,510.29
(e)Rent & Outgoings$130,117.89
(f)Removal of Plant & Equipment$9,817.50
(g)Surrender Costs$170,862.90
$650,552.24
- [45]The plaintiffs submitted that RFG’s decision to operate the store (for a period) and freely use their plant and equipment after the plaintiffs abandoned it constituted an intervening event which (a) precluded any claim in respect of the balance of the lease term, and (b) absolved the plaintiffs from any further liability under the franchise agreement, the outlet agreement and the corresponding guarantees.
- [46]That contention was not pleaded and it is far too late to raise allegations of that nature in submissions, after the evidence has concluded. It must be rejected as a matter of fairness. In any event, no authority was cited which would support such a remarkable and disentitling effect when a franchisor attempted to mitigate loss.
- [47]The plaintiffs also submitted that RFG’s Exhibit 159 quantum calculation was defective and unreliable. It was said that its author, RFG’s accountant Mr C. McDowall, erroneously prepared mere forecast estimates rather than an accurate statement based upon his examination of the relevant books and records.
- [48]Whilst it is true that Mr McDowall used the word “estimate” in his evidence, it is clear from the way in which he described the exercise which he undertook in calculating Exhibit 159 that he did precisely that which clause 11.4 of the Franchise Agreement required. That clause provides as follows:
“11.4 Damages: The Franchisee and Guarantors acknowledge that should this Agreement be terminated in accordance with clause 11.2 above, the Franchisor shall, without prejudice to any of its other rights at law or otherwise, be entitled to recover from the Franchisee and or Guarantors damages on account of Franchise Service Fees and Marketing Contributions which would have been payable by the Franchisee to the Franchisor, had this Agreement expired by effluxion of time, in an amount equal to:
- (a)the minimum amount payable by the Franchisee on account of the Franchise Service Fee and Marketing Contribution multiplied by the number of weeks which would have existed in the unexpired portion of the Term had this Agreement not been terminated;
- (b)ten percent (10%) of the average reported Gross Sales of the Franchised Operation during the Term of this Agreement elapsing prior to the date of termination multiplied by the number of weeks which would have existed in the unexpired portion of the Term had this Agreement not been terminated;
whichever is the higher.”
- [49]Mr McDowall did not make an estimate (that is, an approximate calculation or educated guess) but rather calculated the relevant figures for fees and levies based on past average weekly sales.[15]In a sense, as RFG correctly submitted, his calculation of future weekly sales was an estimate—but it was the precise mathematical exercise which clause 11.4 required for the calculation of what those sales figures would be. Contrary to the plaintiffs’ submissions, his evidence was not discredited because he could not recall the precise clause number or form of agreement or because his calculation instructions were not in evidence.
- [50]The plaintiffs also submitted that the quantum calculation:
- (a)failed to account for (or in other words, they should have received a credit in it for) their bank guarantee which was forfeited, the time that RFG benefited from operating the store, and any salvage value of the plant and equipment; and
- (b)failed to take account of the present value of money in the forecasts.
- [51]As noted, clause 11.4 prescribes the method to be used in calculating the quantum of RFG’s loss and damage. It makes no provision for the calculated total to be reduced or adjusted as contended by the plaintiffs and no authority was cited which would require that to be done.
- [52]The plaintiffs could have raised those contentions in a pleaded set-off under UCPR rule 173. They could also have incorporated it into their Reply and Answer. A set-off would have had the effect of a cross-claim to reduce their liability under RFG’s counterclaim.
- [53]However, the set-off procedure was not utilised by the plaintiffs. As the relevant contentions were not pleaded, it would be unfair if they could be raised at such a late stage as in submissions, after the evidence at the trial has concluded. The plaintiffs’ contentions cannot now be considered and must therefore be rejected.
- [54]As no other contentions were advanced by the plaintiffs to dispute the legal basis for or quantum of RFG’s counterclaim, there is no reason why it should not be accepted.
Disposition
- [55]I am satisfied that RFG has made out its counterclaim.
- [56]Accordingly, there will be judgment for the first, second and third defendants against the plaintiffs for $650,552.24.
Orders
- Plaintiffs’ claim dismissed.
- Judgment for the first, second and third defendants (on their counterclaim) against the plaintiffs for $650,552.24.
- I will hear the parties as to costs.
Footnotes
[1] Chappel v Hart (1998) 195 CLR 232, at [32], [93]; Rosenberg v Percival (2001) 205 CLR 434, at [24]; Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) [2016] QSC 5, at [74]-[76].
[2] T5-23 ll22-36; T5-45 ll25-31.
[3] T2-82 ll15-19; T3-20 ll26-31; T3-8 ll43-44; T3-12 ll21-22; T3-12 l45-T3-13 l1.
[4] T3-7 ll8-44.
[5] Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, at [31].
[6] T3-8 ll1-3; T3-8 l38-T3-9 l9; T3-14 ll3-9; T3-15 ll19-26.
[7] T3-26 l17ff.
[8] T2-70 ll1-2.
[9] Further Amended Statement of Claim (FASC), para 30.
[10] FASC, paras 33, 36A, 36B.
[11] FASC, para 33(ai)-(av).
[12] T6-95 ll4-35.
[13] Henville v Walker [2001] HCATrans 18, per McHugh J.
[14]Consequently, RFG’s other counterclaim to which Mr Dellit is a counterclaiming party does not arise for consideration.
[15] Eg, T7-80 ll22-31; T7-81 ll9-15; T7-82 ll31-33; T7-84 l46-85 l7; T7-85 ll13-15, 32-36; T7-68 ll31-32; T7-85 ll38-43; T7-86 ll34-43; T7-86 ll5-12.